HONG KONG: China’s recent crackdown on overseas listings has thrown a wrench in the works of startups looking to go public, driving them to pursue investors in Asia’s rapidly growing private capital markets.

       JPMorgan Chase & Co estimates the fundraising amount in private capital markets for entrepreneurs in Asia surged to over US$240bil (RM1.04 trillion) last year from about US$100bil (RM418bil) in 2017, driven largely by Chinese firms.

       For years, the private market for stakes in the hottest companies in Silicon Valley has pumped ever-increasing sums into startups, and more recently, investors such as Blackstone Inc and Temasek Holdings Pte have swarmed toward China’s unicorns ahead of initial public offerings (IPOs).

       Now sectors such as education and consumer technology have fallen under Beijing’s steely gaze, throwing IPO plans off course and sending cash-burning firms back to square one.

       “A higher number of companies will be considering private markets as a potential fundraising avenue,” said Selina Cheung, co-head of Asia equity capital markets and head of private financing markets for Asia Pacific at UBS Group AG. “It’s getting more difficult to raise funds in the public market amid the regulatory headwinds and Sino-US tensions.”

       Companies like ByteDance Ltd, which had been preparing for an IPO before the crackdown started, are not the only ones whose listing dreams are on hold. Last year’s global surge of listings has given way to a slump, as rising rates and market volatility cast a pall over high-growth companies.

       The situation is particularly acute in Hong Kong, which saw its worst January for IPOs in three years. Startups in Asia are hoping potential private backers will continue to focus on the opportunities for patient capital.

       “The private market provides a significant source of alpha for investors,” said Jonathan Paul, head of private capital markets for Asia Pacific at JPMorgan.

       They would prefer investing in startups earlier in their life cycle at a lower valuation and secure a stake in the company before they go public, he added.

       The availability of private funds in Asia has grown phenomenally compared with a few years ago. “The whole spectrum has changed,” Shubhomoy Biswas, head of equity private placement for Asia ex-Japan at Nomura Holdings Inc, said in an interview.

       “What was earlier largely limited to venture capital funds, is now seeing interest from a broader set of private equity funds, corporate investors, family offices and crossover investors.”

       Firms such as Blackstone, PAG and TPG have stepped up in doing more pre-IPO or growth-stage investments in Asia, according to UBS’s Cheung.

       Buyout firm PAG contributed the eyebrow-raising sum of about US$2.8bil (RM11.72bil) to Dalian Wanda Group Co’s commercial property management unit’s US$6bil (RM25bil) pre-IPO funding round in Hong Kong, people with knowledge of the matter said.

       Singapore state investor Temasek joined Genki Forest’s funding round last year, Bloomberg News reported in August. The Chinese beverage maker was valued before the investment at about US$15bil (RM62.78bil), people familiar with the matter said at the time.

       Family offices and crossover investors are also keen to invest in pre-IPO rounds at a valuation discount to the expected public listing, JPMorgan’s Paul said.

       “We’re getting reverse inquiries from investors asking for access to some of these companies which are looking to do an IPO down the road.”

       An early mover in the space, JPMorgan has had a special team for private capital markets for about six years and a dedicated Asia team for the past four. Nomura, UBS and wealth manager Julius Baer Group Ltd. are also among those staffing up in private markets.

       Julius Baer set up a group to handle direct private investment about a year ago. It hired Giuseppe De Filippo, a veteran banker who worked at UBS for almost 15 years, to lead the initiative. The bank appointed Liang-chee Chong from HSBC Holdings Plc to build the business in Asia.

       “Of all the large family offices and wealthy individuals globally, direct investments into properties or companies represent more than 30% of their total asset allocation,” De Filippo said in an interview. — Bloomberg