Venture capital funds with a focus on China raised $2.7 billion in the second quarter, an amount which represents a decline of more than 50% when compared to the first quarter, according to Preqin. It is expected that this sluggish start to the year will reduce fundraising in the Asia-Pacific region to the lowest level it has seen in a decade, the report added. To highlight the global trend of declining valuations, Shein, a Chinese fashion startup, raised $2 billion in the second quarter at a value of $66 billion, a number which is significantly lower than the $100 billion valuation it had obtained just over one year ago, Preqin noted.
Venture capital and other private investment funds with a focus on China have experienced a sluggish start to the year, which is expected to result in Asia-Pacific fundraising for such assets falling to its lowest level in a decade, according to a second-quarter update from Preqin, an alternative assets research firm. Alternative assets are investments that do not include stocks and bonds traded on public markets.Angela Lai, vice president and head of APAC and valuations, research insights, at Preqin, commented in a statement, "Given the current economic and geopolitical tensions related to China, investors are still adopting a cautious approach. We don't foresee a large number of investors quickly allocating more funds specifically to the Chinese market."The Chinese economy has seen its recovery from the pandemic become more sluggish in recent months. Complications in the venture capital realm go back even longer, with the Didi U.S. IPO in 2021 and increased regulation from the U.S. and China halting the previously thriving international investing trend. Moreover, the U.S. is considering restrictions on investment in cutting-edge Chinese technologies.
Venture capital funds targeting China raised $2.7 billion in the 2nd quarter, a stark drop of more than 50% from the 1st quarter, according to a report by Preqin, dragging the total VC fundraising in Asia-Pacific to its lowest in at least five years at $4.5 billion. Andrew J. Sherman, a partner from Brown Rudnick in Washington, D.C., highlighted the additional risks posed when governmental regulations and policies can shift abruptly, but also noted that "no sophisticated U.S. investor thinks they can make all their money just investing in the U.S." Preqin's analysts still view China as the primary driver for a recovery in the region due to its wide range of investment options, deep capital markets, and significant trading influence on APAC countries. New rules for private investment funds in China are set to come into effect on Sept. 1, with a goal of encouraging long-term investment in innovative startups.
Private equity funds in China have experienced a "more difficult" year this year, according to Lai, with fundraising levels in 2022 standing at just under 12% of what they had earned the previous year. Additionally, Preqin noted a first-time decrease in assets under management for China-focused private equity firms in the last five years, an occurrence that Lai considers worth paying attention to. He believes this downturn is due to the fact that new capital is entering more slowly than investments are being sold off, potentially causing a decrease in valuations.
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Data from Preqin showed that Shein, a Chinese fashion startup, was able to raise $2 billion in the second quarter, following a worldwide decline in evaluations. The evaluation was reported to be at $66 billion, compared to $100 billion a year and a half earlier.
Money is being funneled to Japan. Asia-based funds have increased their part of private equity fundraising in the Asia-Pacific region in the second quarter, with Advantage Partners - a Japan-focused investment organisation - garnering the most significant sum at nearly $1 billion, as per Preqin.Japan has had the most private equity transactions in the Asia-Pacific area for two successive quarters, while transactions in the greater China region dropped by more than 55% in the second quarter from the first, as the report stated.
This market is generally considered to have relatively low risk with steadier, albeit at times smaller, returns. The depreciation of the Japanese yen in comparison to the US dollar has made it all the more appealing to foreign investors, particularly in the real estate sector. This year, U.S. billionaire Warren Buffett considerably boosted investments in Japan. Additional Asia-Pacific transactions in the second quarter were observed in the semiconductor and electric car supply chain industries, both backed by Japanese and South Korean private-equity firms. With the intensifying technology race between China and the US, Preqin's report stated that more investments can be expected in these value chains, thereby creating chances for private investors.
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