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Surviving the winter of Chinese private equity
Following the initial boom of liberalisation, new restrictions are having a severe cooling effect on the nascent international Chinese private equity real estate (PERE) market – fund managers that are in it for the long-haul will need to up their game during this period of tightening, writes Jimmy Leong, Managing Director in Asia, at Augentius.

October 08, 2018 | Jimmy Leong
  • AUM grew at the slowest pace in three years in August, and could stall or even reverse
  • Following the boom, the government has intervened to make structures tighter and more robust, in order to ensure the market’s growth does not outstrip its quality
  • It will become more important than ever to stand out from the competition, and make every effort to adopt best practice operations in the eyes of both regulators and investors

The first summer – figuratively speaking – of the newly liberalised Chinese private equity real eastate (PERE) market has come to a definitive close. The historical (if piecemeal and partial) opening up of the domestic market to foreign funds and managers understandably caused a bit of a gold rush effect, with the number of active funds ballooning by a factor of eight during 2017 and total assets under management (AUM) topping $1.6 trillion, helped along by attractive yields relative to traditional equity markets.

However, the winter is fast approaching and funds are starting to see their fundraising channels dry up, and are increasingly fighting over smaller pots. AUM grew at the slowest pace in three years in August, and could stall or even reverse. The casualties are already coming in – the list of funds that have failed to register with the Asset Management Association of China (AMAC) this year is now over 180 names long.

Though wider market volatility, exacerbated by the war of words over trade with the US, hasn’t helped, new regulations are also playing a big part. The Chinese government has long had a general policy of liberalising its economy in a gradual, highly controlled manner, and the PERE industry is no exception. Following the boom, the government has intervened to make structures tighter and more robust, in order to ensure the market’s growth does not outstrip its quality. Fund managers must now register with the AMAC to ensure oversight and investor p...

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Keywords: Assets Under Management, Regulation,