According to the eFront report, China is the best performing market for risk capital returns
For those who invest, China is the place where earnings are the safest. According to the new eFront report, China, in fact, surpassed the United States last year as the best performing market for risk capital returns.
eFront – which is a provider of financial services software owned by Black Rock – said in its new report that China, by offering a total payment value (TVPI) of 1.72 times, is the most risk capital market performing globally.
Tarek Chouman, managing director of eFront, commented: “Much of that value [of China] is not realized. The immaturity of the Chinese market means that much of this value is actually not proven.”
The TVPI value measures the capital invested in relation to the total amount of capital paid to date in the fund
According to the report, which analyzed data from 4,000 funds globally, the United States is still the most mature leveraged acquisition market in the world and with a TVPI of 1.63 times. If we then analyze the internal rate of return, the United States has had a slight advantage over China.
However, these results must be taken into consideration when they arrive after a period in which the flow of business, with commercial tensions and according to Refinitiv data, fell by 10.3 per cent globally to 2.82 trillion dollars in the first nine months of the year.
The decline in the flow of business occurred when the United States and China were stuck in a trade war and the uncertainty over trade policy, against the backdrop of the slowdown in the two economic powers, weighed on business sentiment and caused some companies to delay future investments.
One sector in China that has suffered a sharp slowdown in external investments is technology companies
David Cho, a partner at the law firm of Dechert in Hong Kong, commented: “There’s definitely been a slowdown we’ve seen from our side on outbound M&A [from China]. Chinese companies are reluctant to go into the US, and the general uncertainty about the economy is also affecting their foray into other markets as well, extending beyond the US”.
“It’s also creating some opportunities. Korean companies for example, I think are certainly facing less competition in terms of overseas assets, as well as Japanese companies who are looking buy companies overseas”. Investment from the United States in China is also declining, Cho said, with colleagues working on venture capital investments that tell him that both the flow of business and fundraising have declined.
“There was a time when China spent a lot of money going outbound and then the government sort of reined it in and limited capital flow, restricting it to really highly important sectors, industries where foreign technology would be beneficial to the growth of China internally,” Cho said. “But now with this trade war going on… transactions aren’t really happening, especially not into the US. I don’t think Chinese companies are willing to take that risk on obtaining regulatory approvals.”
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