The secondary private equity market in China is increasingly attracting global investors as they view it as an appealing entry point into the Asian market, particularly given the recent tensions between the United States and China and the resulting market downturn that has led to lower valuations.
Frederic Azemard, managing partner of secondary private equity investor TR Capital, has emphasized that many global investors see secondary investments as a means to gain risk-adjusted exposure to Asia, given the potential for higher and faster liquidity turnover compared to primary investments.
Despite a 28 per cent drop in transaction volume last year, the long-term growth of China’s secondary private equity market has been remarkable, experiencing increases of 53 per cent, 153 per cent, and 39 per cent in 2022, 2021, and 2020, respectively. As a result, well-known investors such as sovereign wealth funds, insurance companies, and pension funds are turning to the secondary market for alternative opportunities to participate in the growing Asian market.
TPG NewQuest, the secondary-market arm of US private-equity giant TPG, has also observed significant interest from investors. This trend is further supported by British asset manager Schroders Capital, which has noted growing interest from Asian and Middle Eastern investors in the secondary market.
The allure of the secondary private equity market is further underscored by the specific opportunities it presents in sectors such as healthcare, services, logistics, consumer products, and technology in China. Furthermore, troubled Chinese property developers looking to offload assets have created additional opportunities for investors in the secondary market.
Overall, the secondary private equity market has gained prominence across Asia, particularly as exits in the primary market have become challenging due to uncertain macroeconomic conditions and unpredictable IPO markets. In 2023, exits in the Asia-Pacific region fell by 26 per cent, prompting investors to seek continuation vehicles such as the secondary market.
The demand for the secondary private equity market is expected to persist, as it plays a crucial role in providing liquidity solutions for a healthy private equity and venture capital industry. As the market continues to evolve, investing in the growing secondary private equity market in China is becoming an exciting prospect for global investors.