A recent side-by-side comparison of the U.S. and Chinese economies produced a startling result: There were $34.8 billion of initial public offerings in China this year and only $13.7 billion in the U.S.
With numbers like that, is it any surprise that Western fund managers are scrambling to get a bite of the immensely profitable Chinese market for new companies? As the New York Times reported, U.S.-based Blackstone Group has formed a partnership with Shanghai’s municipal government to raise a $732 million private equity fund.
What’s different this time is that Blackstone’s fund is denominated in the Chinese currency, which is officially called the renminbi. Blackstone’s idea is to take advantage of capital from China’s increasingly wealthy institutional and private investors. The fund will then use the investments to buy companies and take them public, earning a hopefully large profit along the way. There is plenty of interest in the Chinese market for new companies—Carlyle Group announced this week that it had invested $60 million in three Chinese growth companies. So there is no shortage of domestic companies ripe for turnaround [Source].
A few weeks ago, Stephen A. Schwarzman, the chairman of the Blackstone Group, the world’s biggest private equity firm, signed a joint venture here with Shanghai’s municipal government, creating the first Blackstone fund denominated entirely in Chinese currency.
The $732 million fund was the latest example of two trends: global private equity firms seeking to raise capital from increasingly wealthy Chinese individuals and institutions, and the growing international stature of the Chinese currency, formally known as the renminbi.
According to Zero2IPO, a Beijing-based research firm, more than 190 funds denominated in renminbi have been established in the last two and a half years with a combined total of more than $30 billion. In the past, investments in Chinese companies were largely done through offshore holding companies in tax havens like the Cayman Islands.
Chinese private equity funds are emerging in big cities as China promulgates new regulations aimed at creating a homegrown private equity industry, one that Beijing hopes will strengthen the country’s capital markets and fuel private sector growth in an economy overly dependent on government investment [Source].
The mood in London financial markets is not good. House prices are going down, and with them the British pound. Investment bankers within UBS are looking around for jobs, and the Royal Bank of Scotland is sweeping ABN Amro’s trading floor clean with incredible lack of style:
ABN’s structured credit traders were apparently told on Thursday that they should report to RBS’ London office in preparation for a move there on Monday. Terminals needed to be checked and such like. And when they got there… they were all fired (full story).
Luckily, the British have a great sense of humour, and I couldn’t stop laughing at this economic assessment of London 2010 from the price of everything blog:
London, April 2010 – Wall Street firms have just announced their latest results for FY 2009;
300 million staff have been “written down”, leaving just two (Sid and Doris Bonkers) to manage the investment banks’ remaining worldwide debt, equity, merger and advisory, securitisation, syndication and prime brokerage businesses.
Marti Peeps, sole analyst at the last remaining research house, Teletext, welcomed the results as “a bold step in the face of ongoing bad debt provisioning,” though conceded that the City’s newly “rightsized” payroll might struggle to take on board the burgeoning supply of new issuance, namely the packet of Walkers Crisps rumoured to be hitting the primary market in late summer 2012.Hopes for a recovery in Wall Street earnings have for several quarters hinged on the prospects for the successful completion of a 40p private placement of a bag of Salt and Vinegar flavour crisps on behalf of the Walkers Crisps Company. Lead underwriters JPCitigroupMerrill, a subsidiary of the US government, and Northern Rock SocGen KFW Nomura, a wholly owned subsidiary of Tesco plc (Neasden branch), are rumoured to have “solid” interest for the underwriting, most notably from Asia, itself a subsidiary of Texas Pacific Group, but declined to go into further detail. (click here for pdf version. Enjoy!)
Update @ April 15th: London’s financial services sector faces a loss of 20,000 jobs over the next two years. Cuts by Citigroup and RBS are the tip of the iceberg (BusinessWeek).
Today, the world’s biggest bank delivers dreadful results. Citigroup recorded a net loss of $9.8 billion, driven by a whopping $18.1 billion in pre-tax write-downs and credit costs on exposure to subprime mortgages.
Worse, it is no longer just collateralised-debt obligations and other complex securitised products that are hurting the world’s largest bank (by assets if no longer by market value). Credit cards and other consumer-finance businesses are deteriorating fast as America’s economy flirts with recession.
Capital markets around the world ended the day all in red digits. What more can we expect the upcoming weeks when other leading financials record their 4Q and FY2007 results? How much more write downs can capital markets digest? How can we fix it?
I am not trying to make a political statement here, or whatsoever with the teaser and image headlining this blog entry. I just wanted to have a catchy and provocative picture accompanying the headline.
The private equity industry is growing at a stunning pace for several consecutive years in a row now, transforming the structure and balance of power in global business. Mark O’Hare, managing director of Private Equity Intelligence – a research group based in London – compiled a ranking of the fifteen largest private equity firms, based upon assets under management. Find here the ranking published by BusinessWeek.
In a previous post I wrote about the real soul of private equity firms. What is their real core business nowadays? With respect to the fact that, PE firms are broadening their service offerings to other areas of “high class” finance.
Capital continues to flow between all major stock exchanges around the world. According to research conducted by McKinsey, “the world’s financial assets ranging from equity, fixed income, and other instruments now total more than $140 trillion and are on pace to reach $214 trillion by decade’s end.”
Putting in perspective, it accounts now for more than three times the current global GDP. Deeper financial markets promote a more efficient allocation of capital and risk and offer households and businesses more choices for investing savings and raising capital, respectively.
According to current economic trends including the abundance of capital in financial markets, it is most likely that the number of private equity deals will overpass last year’s record year. Today BusinessWeek reports on the fifteen largest Private Equity firms. These firms have assets under management with a value ranging from $17 billion to $49.7 billion.
Subsequently, Red Herring published an interesting article on private equity in the Tech sector “Will private equity change tech? Or will tech change private equity?“, The Economist devotes a story on “The booming buy-out business” and “The real risks of private equity“.
UPDATE @ February 10th: Morgan Stanley’s Journal of Applied Corporate Finance published articles on “Public vs. Private Equity“(PDF) and “Private Equity and Its Import for Public Companies” (PDF).
Are private-equity firms the new conglomerates? The two look more and more alike. The dozen or so top private-equity firms have taken positions in an extraordinarily diverse range of operating companies, much as big conglomerates have done. Each week brings another batch of multi-billion-dollar deals.
Today, Blackstone Group LP raised its cash offer for Equity Office Properties Trust to $39 billion to thwart rival bidder Vornado Realty Trust a day before shareholders vote on what would be the largest-ever leveraged buyout. (Bloomberg)
So what, exactly, are private equity firms such as Carlyle Group, Blackstone Group, Texas Pacific Group, and Kohlberg Kravis Roberts nowadays? Part buyout shop, part investment bank, part asset-management firm. Colin Blaydon, director of the Centre for Private Equity & Entrepreneurship at Dartmouth’s Tuck School of Business says “There are going to be some major financial institutions that emerge from the phenomenal growth [in private equity] of the last years.” For example “Carlyle is very deliberately moving in that direction. It looks a bit like the mid-’80s, when a handful of big, multiline investment-banking firms emerged as the bulge bracket.” (BusinessWeek)
Another trend, the art of private equity is finding and polishing diamonds in the rough. No wonder, then, that more firms are venturing off the beaten path in search of uncut gems. With record sums pouring into the asset class in recent years, more investors and fund managers are turning to the developing world. (Economist)
Recent Comments