This year, VC/PE exit returns will decline, seeking diversified exit channels
The once-hot PE/VC (private equity/venture capital) market of the past two years is entering a winter. "However, the global stock market will remain highly volatile in 2012, so allocating to PE in 2012 remains a good choice. Historical data shows that PE funds are usually beneficiaries of uncertain environments, and their performance often stands out in such environments." UBS Wealth Management Research strategist Stefan Braegger predicts this in the face of a cooling market.
UBS Securities also points out that PE investments have a long investment horizon, making it difficult to grasp the right time to enter the market. Currently, PE investment in some emerging economies, including China, has become overcrowded. The valuations in some sectors have also risen to high levels, so a diversified venture capital portfolio is expected to be more attractive. In addition, although PE investment is currently fiercely competitive, investors can still expect substantial returns in the future.
By sector, the China Venture Capital Research Institute's report analysis indicates that consumer goods, manufacturing, new energy, TMT, and energy and mining sectors remain the focus of mainstream PE/VC investors. Furthermore, investments in new agriculture, biomedicine, and cultural industries are also showing rapid growth.
Zhao Jin, managing partner of venture capital fund Vivo Capital, told reporters that he remains optimistic about investment opportunities in China's healthcare sector. Vivo Capital has just completed the fundraising for its 7th fund, totaling $375 million, with an estimated 45% allocated to the Chinese market—a significantly higher proportion than in previous funds.
Against the backdrop of the A-share market's policy transformation, PE/VC firms are also seeking diversified exit strategies. Zhang Qi, an analyst at Zero2IPO Research Center, said that with the reform of the new share issuance system, the profit margin for investment institutions exiting through IPOs is gradually narrowing. Coupled with increasingly fierce competition among institutions in recent years, the returns from IPO exits for PE/VC firms in 2012 will inevitably decline, making the exploration of other exit strategies a top priority. It is expected that the returns from exits through mergers and acquisitions will continue to improve.
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