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RMB-denominated Funds Rise with Strong Momentum

By Ada Pearson , Zero2IPO Research Center
Updated: 2009-11-18 13:53:45

In the third quarter of this year, the RMB-denominated funds presented a very outstanding performance in the VC/PE market in Asia (including Chinese mainland) in terms of the currencies of the newly raised funds, dominating China's VC/PE market with an absolute advantage in the newly raised VC/PE fund segment, and outperforming the foreign currency funds by the quantity and amount of newly raised funds for the first time in the history, according to the China VC Report Q3 2009 and the China PE Report Q3 2009 recently published by Zero2IPO Group, a renowned VC/PE research, consulting and investing agency in the Greater China Region, in Beijing.

Of the 24 newly established VC/PE funds available for investment in Chinese mainland in Q3'09, 23 are the funds raised in RMB, representing 95.8% of the total, up 27.6 percentage points compared to 68.2% in the prior quarter, or 25.2% over 70.6% year on year. The financing amount of the RMB funds hit US$3.53B, accounting for 94.6% of the total financing amount, an increase of 75.1 percentage points over 19.5% in the preceding quarter, or 25.4% higher than 69.2% in the same period last year. It is clear that the RMB-denominated funds rose with a strong momentum in China's VC/PE market in the third quarter of this year. 

In Q3'09, as stimulated by such short-term factors as the stimulus packages of various countries, the world economy showed the signs of recovery and started the road towards a slow rebound, but the growth momentum still remained weak. Influenced by this trend, China's VC/PE market began to pick up steadily, but still failed to step out of the economic adjustment period. In this context, the performance of RMB-denominated funds was rather conspicuous. As to the causes behind, the Zero2IPO Research Center attributes them to the following points:

First, from the perspective of the macro policies of the state, the central government and the local governments at all levels actively promoted the development of China's VC/PE market. In particular, the local governments represented by Shanghai and Beijing have recently announced new policies, which have gradually removed the policy barriers that hindered the establishment of RMB-denominated funds within the Chinese territory.

Second, in terms of the funding source of RMB funds, one of the major problems encountered by the funds during development – lack of funding sources – is being resolved step by step. We have observed the rapid expansion of the LP groups of RMB funds, represented by the Social Security Fund, government treasuries, corporate funds, securities companies as direct investors, private enterprises and wealthy individuals. Further driven by the upcoming entrance of the insurance fund, the pressure onto the funding source of RMB funds is expected to be further alleviated.

Third, regarding the exit channels of RMB funds, China's multi-leveled capital markets are growing mature after the recovery of the IPOs and the launch of ChiNext. As the continuous improvement of exit mechanism has stimulated more and more domestic funds to flood in China's VC market, it is natural to witness the surge of the RMB funds. We believe as the application of "local raising, local investment and local exit" mode in China's VC/PE market is on the rise, the era of the fast growth of RMB funds may arrive soon.




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