ChinaVenture's CVSource Report - 2005 Vintage USD Funds in China: IRR 5%

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BEIJING, Aug. 20 /PRNewswire-Asia/ -- USD funds have been the first choice for local enterprises looking for private placements since foreign VC/PE institutions flocked to China in 2004. Close analysis of returns earned by China-focused VC/PE USD funds found that, by the end of 2009, the Remaining Value to Paid-in Capital of most post-2004 vintage USD funds is more than 80%, and their Distribution to Paid-in Capital varies in the 0-5% range. In general, post-2008 vintage growth funds tend to be more profitable than venture funds.

By the end of 2009, 2004/2005 vintage USD VC/PE funds have already invested over 90% of their fund, and are geared up for capital exits, while 2006-2007 vintage funds saw their ratios of Called-up to Committed Capital standing at 69% and 42% respectively. However, due to shrinking investments from foreign LPs in the wake of the 2008 devastating subprime mortgage crisis and lower valuations for local listed companies, GPs were more cautious towards any aggressive investment. As a result, 2008/2009 vintage funds have invested a mere 19% and 1% of their capital respectively (as shown in Figure 1).

Based on the data available from ChinaVenture's CVSource, by the end of 2009, the ratios of the Distribution to Paid-in Capital for 2004, 2005, and 2006/2007 vintage USD funds stood at 26%, 20% and 5-6% respectively. Representative cases of IPO exits were, among others, NEA 11 (2004 vintage)'s Spreadtrum Communications (NASDAQ), and SAIF Partners Asia Fund II (2005 vintage)'s Perfect World (NASDAQ).

On the other hand, despite a low 36% ratio of the Remaining Value to Paid-in Capital for 2004 vintage funds by the end of 2009, the figures for 2005-2008 vintage funds still hovered well over 80%. With current fund returns being a key gauge for existing LPs' decision to contribute to future funds, foreign GPs will exert their utmost to seek for exits in the coming 3 years, in a bid to boost their performance, thus, exit deals sealed by USD funds are expected to increase up till 2012.

In terms of the IRR, based on the data available from CVSource, the arithmetic average, capital-weighted arithmetic average and median for 2005 vintage funds, by the end of 2009, all stood at about 5%, with Carlyle Asia Growth Fund III and Baring Private Equity Asia III Fund being the best performers among current VC/PE USD funds in China (as shown in Figure 2). Most 2004/2006 vintage funds, including GGV Fund II (2004 vintage) and GGV Fund III (2006 vintage), remained unprofitable, with their IRRs in the range of +/-1%. The development of investee companies and performance in capital subsequent exits are supposed to widen the returns gap among different funds. By the fund type, the arithmetic average IRRs for 2006 vintage USD funds of all kinds, namely venture, growth and buyout, were in a narrow 0-2% range, while those for 2007/2008 vintage funds varied to a rather great degree (as shown in Figure 3). It is worth notice, however, that with the growing popularity of growth investment strategies, growth funds managed to beat their venture peers by 7% in 2008, despite an approximately 5% lower IRR than the latter a year before, suggesting its greater potential in profit growth.

Figure 1: VC/PE Funds in China - Median Called, Distributed and Remaining Value as of 31st December 2009

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    Figure 2: VC/PE USD Funds in China - IRR as of 31st December 2009
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Figure 3: VC/PE USD Funds in China - IRR by Fund Type as of 31st December 2009

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About CVSource

Created by ChinaVenture Group, CVSource is an online database system providing professional information and data solutions, including analysis of equity investment trends, records and analysis of investments and M&A activities, industry research, company analysis, analysis of funds and fund managers, breakdown of investment terms and conditions and studies on regulations on fundraisings and investments. CVSource is dedicated to providing information services to all players active in the Chinese VC & PE market -- VC/PE investment institutions, limited partners, strategic investors, investment banks, law firms, accounting firms, research institutes, consulting firms and domestic companies seeking investors.

    For more information, please contact:

     Swigee Ma
     Phone: +86-10-5979-9690 x688
     Email: [email protected]

SOURCE ChinaVenture