Private equity investors must rely on their best instincts and closely monitor recent legal developments if they want to make it through an icy economic season for the industry, writes Richard Li
“It’s November now. Limited partners of many private equity and venture capital funds are now conducting meetings. Some funds have invested in almost no projects this year, or only a small number of projects,” observes Michael Qi, a partner at Fangda Partners in Shanghai.
His words sound a warning of a harsh winter ahead for private equity and venture capital (PE/VC) funds. Pressure from limited partners (LPs) may make the cold even more bitter for general partners (GPs) of PE/VC funds.
The traditional exit channel of going public is less popular and more difficult, and fund managers are hesitant to take on many projects.
“The global economic environment is not very good, and the domestic economic outlook is also uncertain,” says George Niu, a partner at Global Law Office in Beijing. “Starting from the first half of this year, the number of [PE/VC] investment projects is falling, and the deal values are also decreasing. In general, this industry has entered a relatively quiet period.”
But behind this quiet is an increasingly fierce competition between GPs. “The following several years will be very challenging for GPs,” says Selena She, a partner at Llinks Law Office in Shanghai. “At this moment, as a GP, you have to prove you’re stronger than other GPs to those LPs and can bring them better financial returns. Also, you have to prove to the companies you are better – that taking my money will be helpful to them on their business and management.”