Harvard endowment debate shows PE funds’ China struggle

NEW YORK: China-focused private equity (PE) firms are struggling for new cash, hit by increased skepticism among United States pension funds and endowments about the growing political and market risks of Asia’s largest economy.

In a sign of a potential pullback, Harvard University’s endowment is considering tapering its investments in China, according to people familiar with the matter, who asked not to be named discussing private information.

A pension fund for Pennsylvania state employees hasn’t committed new cash to Chinese PE funds in the past 12 months, while Florida’s pension system has halted new investments in China as it assesses the risks.

Such reluctance meant that US dollar-denominated funds that invest in China raised US$1.4bil (RM5.9bil) in the first quarter, the lowest amount for the same period since 2018 and a third consecutive quarter of declines, according to research firm Preqin.

The pullback is hitting even high-profile China names.

Ex-Goldman Sachs Group Inc rainmaker Fred Hu’s fund is still US$500mil (RM2.1bil) to US$1bil (RM4.23bil) shy of its maximum raise with time running short.

Firms in previous years had little problem reaching the so-called hard cap.

China’s investment landscape is in turmoil, with some top investors shunning the nation after president Xi Jinping unleashed a broad crackdown on the private sector, reining in technology giants such as Tencent Holdings.

The United States has also slapped sanctions on Chinese firms and delisted some companies from markets in New York. Now China’s close relationship with Russia and continuing travel restrictions in mainland China and Hong Kong are adding to risks.

As Chinese stocks tank and public listings stall, exits by PE firms have been subdued. Industry watchers said a shakeout is coming after years of breakneck growth. — Bloomberg

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