Edwick Investment Chairman: Asia PE market bubble risk is very low

Bruno Aschler The current Asian, especially China private equity investment Market is facing a series of "positive", its performance is: the macro-economic growth prospects continue to be bullish, Chinese enterprises in the international and domestic market exit channels smoothly; compared with the public offering market, most of the private equity funds into a relatively modest valuation China has a wealth of experienced fund managers, and the overall balance of capital supply and demand is expected to remain at an attractive level in the future.　　This good situation is expected to continue in 2011.　　The capital supply has been growing for 2010 years. The successful exit of PE background enterprises (especially Chinese enterprises) has greatly increased the interest of international and domestic investors in private equity investment in Asia. Recently, Hisoft software, when, Mingyang Electric, SouFun, Youku, learn big net and other enterprises exit for investors brought attractive return on investment. Since the beginning of 2010, a total of more than 20 Chinese companies have issued American Depository Receipts (ADR) in the U.S. market. The number of Chinese companies that issued ADR in 2010 hit a record high.　　Private equity investment in 2010 turned three times-fold. The development momentum in mainland China is equally exciting: as of the end of the three quarter of 2010, a total of 35 PE/VC background companies have been listed.　　Han Wang, Central and southern Publishing Media, Grammy, East Rising and other enterprises of High-profile exit for investors to bring the same generous return. As a result of the global financial crisis, international investors have reduced funding for the Asian private equity market over the past two years. Now they are starting to increase their allocations for private equity in Asia, especially in China. Many international investors who have never dabbled in Asian private-equity markets have begun to seriously consider entering the market. Asia is once again the main reason for chasing the market: Asian growth is expected to rise, especially in the medium and long term, and, thanks to deleveraging in the US and Europe, Western investors think it is more necessary to diversify their portfolios; after the massive quantitative easing in the US and the fiscal stimulus in the Western world,　　Increased liquidity. There has also been a major shift in the funding of private-equity investment in China. In the global financial crisis, the supply of funds from international investors has decreased. At the same time, the supply of funds from domestic investors has risen sharply, surpassing the supply of funds from Western financial institutions. But over the past few years, the overall supply of funds has grown more slowly.　　In the future, both international and domestic capital supply is expected to continue to grow. The supply of private-equity funds in India is strongly influenced by the inflow of open market investment funds. This may seem paradoxical, but the reason is simple: one unique feature of India is the large number of its listed companies, including small companies. Therefore, public listing has become a kind of financing choice which competes with private equity investment.　　At the same time, publicly listed companies are usually the investment targets of private equity funds. Elsewhere in Asia, private equity is still seen as an emerging asset class, and the number of fund managers in this sector is veryLimited, the climate is still not formed in many Asian countries. The low risk of new capital supply is an important index to measure the attractiveness of private equity investment. Historical experience shows that when the supply of funds in a particular sector reaches a higher level, the risk of disappointment for investors will also increase synchronously.　　International investors have had the painful experience of venture capital in the late 90 and a massive mergers and acquisitions spree in the 2005.　　But at the moment, the risk of bubbles in the Asian private equity market remains low for the foreseeable future, despite rising international and domestic investor enthusiasm for private equity investment in Asia. A reassuring sign is that, in most industries in most countries, entry-level valuations for private equity are still relatively low, especially compared to the open market valuations. But there are exceptions, especially in the pre-IPO private equity investment.　　On the one hand, investments at this stage offer the prospect of quick and attractive returns, and investment risks and volatility are also higher. Another important factor that has helped to reduce the risk of a private equity bubble in Asia is that many international and domestic investors are just starting to think or just start their private equity investments in Asia.　　It will take several years for these investors to complete their Asian configuration, leading to a substantial increase in the supply of funds. In addition, economic growth in Asia and China has eased the risk of a bubble expansion.　　The dynamic growth of private enterprises in the region is driven by long-term good fundamentals such as productivity growth, urbanization and rising demand from the emerging middle class. On the other hand, Japan's economy has maintained its high debt and low growth for years, and in this regard it is more like the United States and Europe, far from China and India.　　As a result, acquisitions remain Japan's most attractive investment strategy. Boost competitiveness The private equity investment industry includes a number of different sub industries, which contribute to economic growth in a variety of ways, as well as a significant difference in investment risk or return. For Asian economies, especially China, the most significant forms of private equity investment are venture capital, growth-oriented capital investment and acquisition investment.　　At present, these investments are usually based on consumption, the Internet, new energy, infrastructure and other investment industries. Venture capital and growth-oriented capital investment can help to promote the creation and rapid growth of enterprises daring to explore new technologies and business models. Historically, venture capital has created many of the world's leading companies, or companies that have caused the industry to shuffle.　　In Asia, venture capital and growth capital play the same role: promoting the creation of Asia's future star enterprises. At present, China's most successful High-tech enterprises have been able to truly grasp the opportunities brought about by economic growth, focusing on consumer services to achieve technology applications.　　Successful examples include Baidu, Ctrip, Sina, Suntech Power, new Oriental education, media outlets, Shanda, Tencent, Mary, Alibaba, etc. In contrast, acquisition investment (mostly concentrated more mature enterprisesEquity) helps to further professionalize business growth and integrate existing operations.