The conflict of interests is difficult to solve foreign-funded institutions RMB PE hesitation

Shi "Local collection, local investment, local withdrawal", which is the original intention of the foreign-funded institutions to set up RMB PE fund in China, but strewn, the problem of conflict of interests between domestic and overseas LP (limited partners) has not been solved, this congenitally deficient has become the biggest obstacle of development of RMB PE. Since last year, foreign institutions in China to set up renminbi funds to accelerate the trend, in addition to specialized PE/VC institutions, Goldman Sachs, Morgan Stanley and other investment banks to join the team, to work with local governments to form their own renminbi PE fund. Some of these funds are still in the recruitment period, some have completed the fund-raising, but the real implementation of the specific investment projects are very few. "I am not impressed by the Chinese Sequoia China, the other foreign agencies set up by the renminbi funds have not disclosed specific investment projects."　　"Weifeng, director of Chinaventure Group Research, said recently to the first financial journal. The lack of investment in RMB PE funds of foreign-funded institutions is a problem of compliance. Some funds have even lost their LP.　　A senior foreign PE person said that while the same institution manages the dollar funds raised outside the country and the renminbi funds raised in the mainland, under the current legal policy framework, it is impossible to solve the problem of fair trade between different LP and even the risk of transferring the benefits. "The same project, if the renminbi fund has been invested, the dollar fund did not vote, then the foreign LP will have the opinion." Even if the investment is a first, there is also the issue of interest compensation.　　Weifeng told reporters. A foreign parent fund in China, the head of the reporters made clear that the current conflict of interest issues, "basically no solution." He once to a foreign PE organization to explore the issue, asking the other party to give a reasonable solution, the other side hesitated after a long time to answer: "You believe me."　　"It seems that there is no other way than to trust each other completely," he said. Before the financial crisis, VC/PE funds of foreign institutions once dominated the domestic market. However, with the tightening of foreign takeovers, dollar funds are facing more and more restrictions, at the same time, the local renminbi funds have developed rapidly, and foreign institutions to compete comprehensively.　　Under such a double squeeze, foreign institutions can barely stick to a handful of new technology industries such as the Internet, and most of the other industries have fallen into the hands of local institutions. To circumvent policy hurdles and better adapt to local markets, foreign institutions such as Blackstone, Carlyle and TPG have launched a batch of renminbi PE funds since 2010.　　Shanghai, Chongqing, Tianjin and other cities, in order to attract these internationally renowned institutions to settle down, but also for their collection of renminbi funds to provide a preferential policy. But even so, the renminbi fund is still unable to raise funds to foreign LP, otherwise the fund will become a foreign-funded enterprises by many restrictions, foreign institutions to set up renminbi funds also lost the original meaning. The gap between RMB funds and dollar funds and domestic and foreign LP will not be bridged unless capital controls are abolished, industry insiders say.。 In addition to conflicts of interest, foreign institutions need to face more challenges in raising renminbi funds. First, local PE will give LP more concessions in management fees and performance compensation, which is not in tune with the established rules of the game.　　Second, the domestic LP itself is immature, they will demand high returns in the short term, and even seek to intervene in investment decisions. Another challenge comes from the Chinese market itself. The fast-growing Chinese market has not yet provided enough large mergers and acquisitions, PE/VC Hunt are small and medium sized projects, so a fund of 3.5 billion is sufficient. However, Blackstone, TPG and other institutions to raise renminbi funds at 35 billion, if you can not find enough or large enough investment projects, then the fund will be difficult to have the ideal rate of return.