Private Equity Industry in Hong Kong

Overview

• Private equity is an asset class investing in equity of non-publicly traded companies. The common investment strategies of private equity firms include, but are not limited to, venture capital, leveraged buyouts, growth capital, and distressed investment. Venture capital is one of the most popular strategies used by private equity firms in Hong Kong.

• Hong Kong is the second largest private equity centre in Asia, providing local and regional start-up companies with a readily available source of equity financing.

• The majority of private equity funds in Hong Kong come from overseas and invests in companies in the region.

• Hong Kong's stock market offer easier exits for venture investments. Among private-equity-backed IPOs, the Hong Kong Stock Exchange has hosted a major share of Chinese mainland investors’ sales.

Industry Data

Private equity is an asset class investing in equity of non-publicly traded companies. The common investment strategies of private equity firms include, but are not limited to, venture capital, leveraged buyouts, growth capital, and distressed investment. Venture capital is one of the most popular strategies used by private equity firms in Hong Kong.

Range of Services

Hong Kong is the second largest private equity centre in Asia, managing about 19% of the total capital pool in the region, trailing the Chinese mainland. According to the latest available figures, there were 400 Hong Kong-based funds with capital under management amounting to approximately US$110 billion as of end-2014, with a 12% growth compared to the preceding year.

Exports

Hong Kong's private equity industry is highly export-oriented. The majority of the regional funds are based in Hong Kong. An overwhelming majority of private equity funds in Hong Kong come from overseas and invest in companies in the region, including Australia, Singapore, India, Korea, Japan and the Chinese mainland.

Industry Development and Market Outlook

With the growing focus of venture capital investment in the Greater China region (comprising the Chinese mainland, Taiwan and Hong Kong), the Chinese mainland has become the largest private equity centre in Asia. Hong Kong's private equity industry has developed strong expertise of investing in Asia, in particular on the mainland. Mainland-related investment also provides a major theme for Hong Kong's venture capital fund-raising activities. Hong Kong will continue to be an ideal platform for the exit private equity investment, with its IPO fund-raising ranking among the top three in seven consecutive years from 2009 to 2015.

To reinforce the role of Hong Kong as the region’s private equity and venture capital hub, the Hong Kong government extended the profits tax exemption on offshore private equity funds in March 2015.

Organisations in Hong Kong helping support the development of private equity/venture capital include Hong Kong Venture Capital and Private Equity Association (HKVCA) and Hong Kong Micro Venture Capital (HKMVC). Based on the HKVCA statistics, a total of 37 private equity and venture capital deals were reported in the first 11 months of 2014 with an estimated deal total of US$407 million, excluding the substantial private investment in public equity (PIPE) of US$5,675 million in AS Watson by Singapore’s Temasek.

A large number of PE firms with international background have made their presence in Hong Kong while many of them have come from the Chinese mainland. Despite these private equity firms have their offices in Hong Kong, they would not be purely focused on “local opportunities”, which are relatively little compared to those arising in the broader region, particularly the targets on the Chinese mainland.

The Hong Kong government has established an information portal StartmeupHK on Hong Kong’s start-up community, listing the latest start-up events and resources including government incentive and incubation schemes, accelerators, angels and venture capitalists, along with success stories of both local and oversea start-ups. Aside from this, StartBase.HK, an open-source startup profiling database set up in Hong Kong, has been launched to facilitate information flow between venture capitalists and startup companies, with an aim to encourage the development of the venture capital market.