PE companies trapped in China after $1.5-trillion bets
investments they were counting on for hefty returns.
With public markets in a slump and offering unattractive valuations, buyout firms are exploring private sales. But mounting concerns about the risks of investing in mainland China have left so-called secondary buyers demanding discounts of 30% to more than 60%, according to people familiar with the market.
Haircuts in Europe and the US are closer to 15%.
Many firms are also looking at an alternative strategy, putting off sales by setting up so-called continuation funds to take over holdings for several more years, according to interviews with about a dozen of private equity investors and advisers. That's also proving challenging.
The lack of easy exits — affecting the likes of Blackstone-backed PAG and Carlyle Group Inc.
— has shifted the world's second-largest economy from a vast frontier for buyouts into an uncertain landscape for long-term investing. Demand for Chinese assets cratered in the past few years, with record outflows even from public markets, as the economy struggles to regain traction and concerns mount over the political direction under Xi Jinping.
«We are in more challenging times, very similar to the way we experienced the global financial crisis,» said Niklas Amundsson, partner at Monument Group, a global private placement agent.
