Mid-East wealth funds to play growing role in China PE deals

Morrison Foerster’s Hong Kong Partner/Global Co-Chair of Private Equity Practice, Marcia Ellis, and Tokyo Partner/Co-Head of Asia Private Equity Practice, Randy Laxer, were quoted in an article titled “Mid-East wealth funds to play growing role in China PE deals” by AsianInvestor, which references MoFo’s annual Global Private Equity Trends report and explores the prospect of Middle East asset owners being significant drivers of Chinese private market growth as well as a rise in M&A activity in South and Southeast Asia, along with Japan.

According to Marcia, Middle Eastern sovereign wealth funds (SWFs) have considerably increased the amount of their investments in Greater China in 2023. But whether they will be able to fill the void created by the increasing unwillingness of U.S. and European investors to invest in China is still to be seen. "While some of that unwillingness results from the political tensions between the West and China, it also stems from concerns about the health of the market in China and hurdles that the Chinese government has imposed on exits," she said.

Marcia also pointed out that many Middle Eastern SWFs now have an on-the-ground presence in China. "We will see in the next year or so if they are able to achieve an appropriate balance between centralised control in the Middle East and allowing locally based investment professionals some level of decision making authority," she commented.

Such trends may benefit other markets in Asia. According to Randy, while investors look to wrestle with political stability and national security related concerns, in other parts of Asia including China, investors are increasingly look to Japan as an attractive market for investment. "Also, the barriers to entry for PE funds into the Japan market are lower than many other Asian countries. While Japan does have a national security-focussed FDI review process - similar to CFIUS in the US - unlike some countries, there is no legislation in Japan that flatly prohibits foreign investment in Japanese companies, real estate or other assets," Randy commented. "In particular, a number of large US, European and Asian-based PE funds have announced team buildouts, office openings and plans for full-scale entry into Japan in the past year, demonstrating that the Japan PE market is currently well positioned to attract foreign capital."

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