A subsidiary of financial conglomerate Ping An Insurance (Group) Co. of China Ltd. recently held the final close for its $850 million private equity fund, the largest China-based investment vehicle targeting Western markets in at least a decade, according to S&P Global Market Intelligence data.

China Ping An Insurance Overseas (Holdings) Ltd. raised the capital for the fund during a slow global private equity fundraising environment and against a backdrop of geopolitical tensions and increased US regulatory scrutiny on inbound and outbound investments.

The Ping An vehicle, which closed in October, is among a few funds launched by Chinese general partners (GPs) focusing on Western investments.

"The geopolitical tensions between mainland China and Western countries have indeed created a cautious atmosphere for investors on both sides," said Maggie Kwok, head of funds and regulatory practice at Harneys, which advised on the establishment of the Ping An fund. "As a result, mainland Chinese GPs focusing their investment strategies on North America and Europe are finding it increasingly challenging to launch successful funds."

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Currently, 55 mainland China and Hong Kong private equity funds, excluding Ping An's most recent vehicle, are positioned to deploy an aggregate of $7.32 billion into Western markets, according to Market Intelligence and Preqin data.

Among these, CICC Developed Market Private Equity Fund of Funds II leads with $750 million, followed by Ping An Global Equity Selection Fund with $723 million.

Regulatory examination

Investment scrutiny of China's investments in the US and EU is increasing. The US government has laid out rules, set to take effect in January 2025, for US private equity investing in what are deemed to be sensitive sectors in China. The rules also cover some US-based limited partner investments in funds with non-US GPs, "effectively shifting some of the compliance burden to foreign general partners that take US investment," according to law firm Akin Gump.

The rising risk of sanctions on China-based investors in the US is highlighted by the federal government's inclusion of Chinese private equity firm IDG Capital Partners in a list of companies allegedly linked to China's military, Nikkei Asia reported.

The European Commission has also been enhancing regulatory oversight this year, and EU inbound investments from China "are subject to strict scrutiny," according to a Baker McKenzie report, which cited some recent transaction decisions.

Regulatory challenges persist, particularly in technology and infrastructure, said Neeraj Budhwani, a partner in the Hong Kong office of law firm Milbank.

"Those transactions are put under a fine-tooth comb ... not all are succeeding in terms of passing the regulatory hurdles, but some do."

Investors also tend to avoid navigating the complexities of investing in China-led funds. However, the Ping An fund's investor base includes US-based entities, which can demonstrate balance and credibility to regulators, added Budhwani.

The Carlyle Group Inc.'s AlpInvest Partners BV and PGIM Inc.'s Montana Capital Partners AG led the fundraising for the fund and are limited partners alongside Ping An and GIC Pte. Ltd. GIC and Montana were also investors in the Ping An Global Equity Selection Fund, which closed in 2020.

"If the appetite is simply to [take part in] an opportunity in the Western world, then by coming in as a minority, perhaps with less governance rights, and I'm not saying become a passive minority ... that certainly helps with the structuring — in terms of how [Chinese funds] could still get in on the action and deploy cash in a wider number of geographies," Budhwani said.

Funds in market

The Ping An fund was an outlier among China-based funds aiming to raise capital for investment in Western markets. Current private equity vehicles seeking capital have set modest targets, including the CMCC Crypto Fund and eJP EnviroVest Fund IV, which are both aiming to raise $300 million, according to Market Intelligence and Preqin data.