China is back on the radar of European pension funds, endowments
Chinese markets are booming on increased optimism over technology breakthroughs and the economy, as well as a shift out of the US
[HONG KONG] European pension funds, endowments and other large pools of long-term money are once again exploring private equity (PE) investments in China after years of shunning the world’s second-largest economy.
Buyout firms, including Carlyle Group, Warburg Pincus and PAG, are fielding fresh inquiries from big global investors about investing in China, according to sources familiar with the matter, who asked not to be identified because the deliberations are confidential.
The interest, which so far has yet to lead to any investments, is a stark shift from the past few years, when money shifted to other parts of Asia because of increased political tension and China’s crackdown on private enterprise. Now, Chinese markets are booming on increased optimism over technology breakthroughs and the economy, as well as a shift out of the US.
“There’s definitely a little bit more openness towards investing in Asia and China,” said Michael Hu, head of Asia at HQ Capital, a German private equity firm with offices in Singapore and Hong Kong.
Media representatives for Carlyle, Warburg Pincus and PAG declined to comment on shifting global investor interest in China.
Still, China’s climb back to its previous prominence in private equity will be steep.
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Global investors have sharply reduced their allocations to China, dragging down Asia’s share of private equity fundraising to multi-year lows. The region made up just 7 per cent of global PE fundraising in 2024, compared with 13 per cent in 2021, underscoring how international appetite for Asia has shrivelled.
As recently as 2020, China accounted for more than half of Asia-Pacific deal value, but its share fell to just 27 per cent in 2024, according to Bain. Greater China also suffered the steepest exit slump, or the ability of PE firms to sell off their initial investments. The exit value plunged about 65 per cent year on year in 2024, and the count was down more than 40 per cent.
Across Asia as a whole, meanwhile, the overall deal value rose 11 per cent and the exit value improved in every market except China. India stood out as the clear bright spot, delivering double-digit growth in both deal value and deal count.
The private equity industry has reassessed China, with larger firms such as KKR, Carlyle and Blackstone pausing or pulling back from deals in the country since 2022. The largest PE firms participated in just 6 per cent of the deal value in China last year, down from an average of 24 per cent between 2018 and 2023, according to Bain.
Kevin Sneader, president of Asia-Pacific ex-Japan at Goldman Sachs, said that while foreign investors are taking another look at China, caution is still needed.
“The longer investors, that money is still not” flowing back into China, he said at the Milken Institute Asia Summit in Singapore.
North American investors remain largely against investing in China, the sources said. Certain European investors, particularly in Scandinavia, where sentiment on China has been shaped by the Russia-Ukraine war, also remain hesitant. They view any such investment as indirectly supporting Russia’s war effort, a regional head at a buyout firm said.
Increased turmoil in the US is now causing a slight shift. US President Donald Trump’s tariff push is stoking interest in China, in part as investors seek to diversify away from the US. The renewed inquiries also reflect expectations that the US may roll back some of its outbound investment curbs, according to a US-based investor, who asked not to be named.
HQ Capital’s Hu said that investor sentiment shifted sharply after Trump’s tariff move. Investors who had been sceptical about China last September began pressing him for updates on the country and voicing concern over US risks.
Recent months have shown signs of increased private equity dealmaking in China. In August, TPG and the Qatar Investment Authority offered to buy out Hong Kong-listed Kangji Medical Holdings in a deal valuing the Chinese medical device maker at about US$1.4 billion.
Meanwhile, KKR is nearing the acquisition of an 85 per cent stake in Chinese soda maker Dayao Beverage, valued at around US$1 billion, Bloomberg reported in June.
Despite this renewed interest, capital deployment will remain limited until investors see a series of sizeable investments and exits in China, critical signals that the market has truly returned, the sources said.
Vishal Mahadevia, head of Asia private equity at Warburg Pincus, said now would be “great timing” to get back into China.
“It’s the second-largest economy in the world, and it would be smart to have a presence there to build a diversified global portfolio,” he said. BLOOMBERG
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