The financial crisis is having its domino effect on the mainland private equity industry. Many private equity firms worried that the money they raised earlier would not materialise, as their investors have lost billions in other investments.
'They lost a lot in equity and other investments. Now, they might not be able to pay what they promised,' said Bao Fan, founder and chief executive of China Renaissance, an investment bank that helps private equity and venture capital firms to raise capital.
Most backers in private equity are institutional investors such as insurance companies, retirement or pension funds, hedge funds and mutual funds, which are at the centre of the current crisis.
According to a survey by mainland-based researcher Zero2IPO, a total of US$35.5 billion was raised for private equity investment in Asia last year and another US$50.8 billion for the first three quarters this year. The problem is whether all this money can eventually be used.
'The investors only make a commitment during the fund-raising. The actual amount does not transfer to the private equity firm until it makes an investment,' said Mr Bao.
Starting this year, private equity funds have become cautious about spending their money. Data from the Asian Venture Capital Journal showed private equity investments falling off dramatically quarter on quarter during the year, from US$21.7 billion in the first quarter to US$13.3 billion in the second and US$9.2 billion in the third.
