Chinese venture funds seek more time to invest

Venture capital and private equity funds that invested in China during a tech boom are facing challenges in deploying capital. Many of these funds are running out of time to invest their raised money. The opportunities to find good investments are becoming less frequent. Some funds are negotiating to extend their investment timelines. This would give them more flexibility to find suitable investments and a better chance to exit. In recent years, private fundraising for assets in Asia has slowed as global investors reduce their exposure to China's economy. From 2020 to 2022, China was a hotspot for venture capital, attracting over $260 billion. However, many funds have deadlines of three to five years to invest that capital. With company valuations in a slump, funds are struggling to achieve good returns. Tencent Plus Partners is one example, negotiating for a one-year extension on its fund's investment period. The environment for investments has become tougher due to stagnant initial public offerings (IPOs) and slow approval processes from regulators. This has created a disconnect between fund managers and their investors. Fund managers, known as general partners (GPs), earn fees based on committed capital. Meanwhile, limited partners (LPs) face losses if their managers invest in poor conditions. Raising new capital for funds has also become more difficult. Last year, only 11 China-based US-dollar venture funds raised $1.3 billion, down significantly from previous years. The decline in fundraising is partly due to reduced interest from North American pension investors and rising geopolitical tensions. Though the market is challenging, there were some signs of hope. In February, Chinese President Xi Jinping expressed support for private enterprises, raising investor sentiment. However, uncertainty remains about whether this will lead to increased long-term investments. Some investors, including Source Code Capital, have reduced their fundraising targets due to low interest. The lack of liquidity in the market means many assets are stalled, making it harder for funds to make favorable exits. Diverging interests among LPs can hinder decisions on extending investment periods. Overall, while there are glimmers of optimism in the market, many challenges persist for venture capital and private equity in China.