PAG and Carlyle Group Inc., alternative asset managers seeking to raise almost $9 billion each for Asian private equity deals, are falling victim to an increasingly contentious political climate between the US and China, people familiar with the matter said.
(Bloomberg) — PAG and Carlyle Group Inc., alternative asset managers seeking to raise almost $9 billion each for Asian private equity deals, are falling victim to an increasingly contentious political climate between the US and China, people familiar with the matter said.
PAG, Asia’s biggest multi-asset manager, has slashed its target to $6 billion, while Carlyle has pushed back closing its new fund to April after originally seeking to get it done last year, the people said, asking not to be identified as they’re not allowed to discuss fundraising. Carlyle is targeting a first close at 35% of its $8.5 billion target this month. A successful fundraising in previous years would typically require achieving 50% of the target in an initial closing.
While the asset managers have stressed they have a diversified strategy and portfolio mix across Asia, many global pension funds and institutional investors aren’t convinced as they put a halt on deploying more capital to China, the people said. The US is prioritizing plans to scrutinize capital flows to China and are considering proposals that would create a system for monitoring and potentially blocking US investments in the country.
Spokespeople at Hong Kong-based PAG and Carlyle declined to comment.
Following a decade of rapid expansion by China-focused investments, global buyout firms have shifted gears, reducing reliance on China and bolstering dealmaking in India, Australia, Japan, Korea and Southeast Asia.
TPG Capital, which cut exposure to China several years ago on growth concerns, completed the first closing of its Asia fund at 60% of target last year, a person familiar said.
Carlyle earlier told investors it aims to reduce its exposure to Greater China by half in its sixth Asia fund to about 20% compared with 40% to 50% for its previous funds, amid investor concerns about political and regulatory risks, people familiar said in July.
Still, PAG and Carlyle are seeing stronger demand for Asia investments from sovereign wealth funds in the Middle East, partly offsetting shrinking interest from US investors, the people said.
Concern over policy related to China has already contributed to a decrease of capital flowing into the Asian country. In recent years, money-losing buyouts and Beijing’s regulatory crackdown have diminished appetite for Chinese companies, which were the targets of just 0.29% of US private equity deals in 2022, down from 1.2% a decade ago, according to PitchBook data.
Investment sentiment turned sour in 2021, when China wiped out the for-profit education industry and cracked down on technology giants. The Covid-driven lockdown in Shanghai in March 2022, coupled with escalating geopolitical tensions and slowing China growth, is just “too much” for global investors, said Niklas Amundsson, partner at Monument Group, a global private placement agent.
The “broken trust” in China isn’t mending and increasing investment curbs from the US have left global investors with little option but to stay on the sidelines or cut allocations, he said.
Tumbling stock values have also prompted global allocators to reduce their commitments to existing managers because the declines have pushed up private equity weightings in many portfolios. Some investors have chosen to reduce the so-called “re-up” in existing funds in Asia by as much as half while others have refused to add money in funds with a China focus, a person familiar said.
PFA, Denmark’s largest commercial pension fund, has exited two Chinese clothing manufacturers and is discussing how to handle its other China holdings. The Copenhagen-based fund, which manages about $100 billion in assets, has sold out of Anta Sports Products Ltd. and Li Ning Co. Norway’s sovereign wealth fund, the world’s biggest, excluded Li Ning from its portfolio, citing the risk of human rights violations in Xinjiang.
PAG runs about $50 billion in private equity and other investments, while Carlyle manages $373 billion.
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