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Key takeaways from the China Private Equity Summit 2020

8 September 2020

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For the fifth year running Intertrust proudly sponsored and took an active part in the 19th HKVCA China Private Equity Summit. This year’s event went virtual for the first time, convening nearly 700 venture capital and private equity practitioners, investors and other industry professionals across the region and around the world.

This event brought together a distinguished line-up of speakers who shared perspectives and provided insights into the latest developments in China private equity. We’ve summarised below some key takeaways from this event.

China buyout

During the last few months, China buyout funds have been primarily focused on addressing liquidity concerns within existing portfolio companies to ensure they can absorb the short term impacts of COVID. As COVID impacts ease, buyout companies are now relooking at investment opportunities, but finding tough competition in the China capital markets, whose tremendous performance is attracting a lot of would-be investment targets. On the flip side, the strong capital markets are creating ample exit opportunities for buyout funds in China. The outlook remains positive for buyout funds as the strong post COVID bounce-back reconfirms the long-term China thesis, particularly around domestic consumption which is ramping back up to pre-COVID levels and will remain a positive force on the domestic economy for years ahead. Sector selection and diversification during this period remains critical.

A-share PIPE

After a five year bear market period for China A-shares, domestic stock markets have rallied since March. Against this backdrop, General Partners (GPs) and investors are actively seeking Private Investment in Public Equity (PIPE) opportunities in selected A-shares of listed companies. PIPE transactions are typically performed by way of share transfer and/or direct share placement. The relaxation of regulations such as a shortened lock-up period and the removal of minimum investment requirements are among the positive factors to support PIPE activity in China. The development of the PIPE segment is policy-driven, so it is important to be aware that any policy changes can have a significant impact to the PIPE sector.

Fintech

Digitalisation and innovation are two central themes of the modern economy. The pandemic has only accelerated this trend, and fintech is one sector that is set to benefit. Life and health digital insurance in China has seen a recent surge in website traffic indicating that there is a huge demand for virtual insurance and associated investments.  Meanwhile, with the support from both the Mainland and Hong Kong governments, there is significant capital inflow going into the fintech sector in the Greater Bay Area (GBA), and virtual banking and the new “insurance connect” scheme in particular are attracting a lot of interest.

Private Equity Real Estate in China

Despite the geopolitical tension and pandemic challenges this year, the private real estate in China remains resilient. After the (almost full) lockdown in Q1 2020, the activities in residential investment is back on track and the commercial properties deals are nearly doubled when comparing with 2019. The overseas travel restriction, on the other hand, has boosted the domestic travel within the country. Hotel and outlet malls have benefited from the new ‘at home’ travel pattern. Greater Bay Area, Yangtze River Delta and Jing-Jin-Ji area are among the most promising locations for real estate opportunities.

Limited Partnership Fund regime in Hong Kong

The Hong Kong Limited Partnership Fund (LPF) came into effect on 31 August 2020. This new regime provides an investment alternative for fund managers to establish an onshore fund in Hong Kong. The operation of the Hong Kong LPF is governed by the limited partnership agreement, similar to other jurisdictions such as Cayman Islands and Delaware. The Hong Kong Government has recently published a consultation paper around tax concession for carried interest which is expected to provide more clarity and certainty for fund managers. If you are interested in finding out more about the new regime and how we can support, download our quick guide.

Conclusion

In the region, we’re facing dual headwinds from the trade war and COVID-19, and we have to adjust ourselves to this new norm. On the bright side, we have seen more trading activities in equity markets and some tech companies are testing new highs.  Deal flow has slowed down due to travel restrictions, but with central banks injecting liquidity in the market and keeping low interest rates, we believe PE market in China will pick up gradually as the capital needs to be deployed, and the underlying fundamentals remain sound.

How we can help

With more than 40 years of experience in the region, our dedicated fund specialists across Hong Kong and China can deliver tailored, holistic fund solutions with operational intelligence and robust governance framework for alternative investment fund managers to support the operation in compliance with local regulatory requirements. Leveraging on our world-leading systems and technology, we provide full administration services for alternative funds. Our core fund services include fund accounting, NAV calculation, financial statement preparation, treasury and transfer agency services.

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We are more than happy to discuss your specific requirements in order to ensure the best solution for your situation. For more information, please get in touch.