How the Chinese funds market has recovered since the country’s borders reopened.
Fund activity in China is growing again after a pause in expansion marked by pandemic-related lockdowns and economic uncertainty. It’s doing so, however, against a backdrop of high global inflation and a slowdown in mergers and acquisitions.
Throughout the summit’s panel discussions, breakout sessions, and informal coffee break conversations, the focus was on the opportunities and challenges of cross-border investments—into and out of the world’s second-largest economy.
Here are four key takeaways from the event.
Fund activity in China is ramping up—and not just in the biggest cities
The Chinese fund industry is shifting up a gear. There’s plenty of activity in financial centers such as Beijing and Shanghai, as you’d expect. But the sense of optimism is also felt in less obvious places.
General partners (GPs) are taking a close interest in second-tier cities such as Chengdu, which has earmarked significant funds for sponsoring start-up businesses and funds. In addition, some of the top-branded fund managers in China were recently present at an event at Wenzhou in the Zhejiang province. Hefei, the capital of Anhui province, is also attracting attention.
None of these cities are traditional centers of finance, but the interest shown in them as potential destinations in China for funds and capital is evidence of the increase in investment activity across the country.
Chinese GPs are pursuing new outbound opportunities
The Middle East has been a destination for Chinese capital for some time. It’s now being joined by the likes of Germany, South Africa, Japan, Indonesia, and India.
After years of increased proximity to foreign markets, more sophisticated Chinese investors are looking for diversification through growing overseas activities and a wider portfolio of asset classes.
China looks to Asia for more inbound investment
During much of the first half of this year, the denominator effect—which arose during the turmoil in public markets in 2022—restrained new limited partner allocations to private capital across APAC, particularly in China. This has been the drag on new fundraising activity in the short term.
There is still, however, a healthy appetite for China in Asia Pacific, and capital is flowing into the country from the Middle East and elsewhere. Chinese domestic capital is also being deployed in ever-increasing amounts.
We have seen this trend in our own business. While 2022 was quiet, the first quarter of 2023 saw a rebound in new fund launches. With activity returning, we are quietly confident for the rest of 2023.
Chinese authorities continue to encourage foreign investment
Despite a challenging macroeconomic environment, the Asset Management Association of China continues to encourage and support the Chinese funds industry across the country.
As we’ve seen, activity is no longer limited to two or three top-tier cities, and the Chinese government is keen to attract more foreign managers to the country, to manage investments closer to the assets themselves.
In addition, the Qualified Foreign Limited Partnership (QFLP) and the Qualified Domestic Limited Partnership (QDLP) pilot programs have proved a strong draw for global attention.
The QFLP allows foreign investors to invest in China’s financial markets (that is, to raise USD and deploy in RMB). Meanwhile, the QDLP allows foreign fund managers to market offshore investment products to Chinese institutional investors and high-net-worth individuals (to raise RMB and deploy in USD).
One potential challenge for foreign managers is the relative immaturity of the local fund ecosystem. Corporate outsourcers in China compete heavily on price, and fund accountants are inexperienced with the complex world of alternative funds (especially private equity and venture capital funds).
For those reasons, many private capital GPs choose the services of an experienced global provider, which can bring comprehensive global experience and local knowledge, and provide end-to-end services in fund administration and accounting.
CSC provides tailored administration and strategic outsourcing solutions to support the complex operations of alternative asset managers across jurisdictions and asset types while adhering to global regulations and compliance. A market leader, we work with funds of all sizes, from start-ups to the largest and most experienced fund managers in the world. Founded in 1899, CSC prides itself on being privately held and professionally managed for more than 120 years. We are the trusted partner of choice for more than 90% of the Fortune 500® and more than 70% of the PEI 300. CSC has office locations and capabilities in more than 140 jurisdictions across Europe, the Americas, Asia Pacific, and the Middle East. We are a global company capable of doing business wherever our clients are—and we accomplish that by employing experts in every business we serve. We are the business behind business®. Learn more at cscgfm.com.