By Kane Wu and Selena Li
HONG KONG (Reuters) -Global private equity partners are eyeing a return to China after staying on the sidelines over the last few years, encouraged by cheaper valuations and as investors pare U.S. allocations, top fund executives said on Wednesday.
“Investors, particularly the non-U.S. ones, feel like they are overallocated to dollar assets,” Jean Eric Salata, Chairman of EQT Asia told the Global Financial Leaders’ Investment Summit in Hong Kong.
One of the “big beneficiaries” of their diversification and rebalance is going to be Asia, and particularly Hong Kong and China, according to Salata, who was nominated last month as the Swedish firm’s new board chairperson.
Private equity funds have found the Chinese market challenging in the last few years as economic headwinds, geopolitical risks and regulatory tightening weighed on valuations and restricted exits.
“We like China – actually the valuations are cheap. Debt is cheap. There’s almost zero competition, and there’s some great companies,” Chris Gradel, co-founder and CEO of PAG said during the summit.
“Many of our peers have kind of pulled away, both from China and from Asia, but … I think it’s going to continue to be an interesting opportunity,” Jeffrey Perlman, CEO of Warburg Pincus said at the same event.
“The challenge for the previous few years was that the valuations had a reset,” he added, “Now that they’ve reset on a relative basis, it’s getting quite attractive.”
Private equity-backed deals targeting Chinese companies have totalled $25 billion so far this year, already exceeding 2024’s annual amount and poised to be the highest since 2021, Dealogic data showed.
Starbucks earlier this week announced the sale of a controlling stake of its China operations to local private equity firm Boyu Capital. More than 20 global and regional funds showed interest in the bidding process, sources have said.
Foreign funds have a mandate to look for alternatives as their clients shift away from heavy exposure to U.S. assets after U.S. President Donald Trump began a punishing trade war soon after taking office in January.
That has led to an about 5% to 7% change in overall allocations, as funds reduce holdings from “hyper exceptional down to exceptional” levels, Warburg Pincus’s Perlman said.
The capital allocated out of the U.S. may end up coming to Asia, he said.
(Reporting by Selena Li and Kane Wu; Editing by Kate Mayberry)
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