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Evaluating China based private equity funds
On March 9, 2012
A friend recently asked me how he could compare and evaluate China based private equity funds. To summarize our discussion:
Beyond the J Curve: Managing a Portfolio of Venture Capital and Private Equity Funds (The Wiley Finance Series) by Thomas Meyer and Pierre-Yves Mathonet is a good starting point.
The book does not discuss China-specific issues, but it presents a framework and a methodology for evaluating fund managers that should provide a good starting point independent of the geographical focus of the fund.
There are of course China specific issues. Two issues that come to mind are due diligence processes and investment team experience. The combination of 1) a large pool of private equity money devoted to China waiting to be invested, and 2) a lack of experienced PE professionals (and general partners…) will result in a lot of bad deals. In short, you need to make sure that the fund you invest in take due diligence seriously and have investment professionals that can tell the difference.