Hillhouse Capital Setting Up Secondary Fund Team
Investment institution Hillhouse Capital has reportedly been seeking buyers for some of its projects. The firm has responded to the news, claiming that “secondary fund is our new strategy. For fields that we are optimistic about for a long time, we not only invest in equity, but also buy second-hand assets. At present, we are cooperating with local government-guided funds to promote secondary funds.” The company added, “This is a normal secondary fund transaction, and the market potential is huge, which promotes venture capital,” 36Kr reported on Thursday.
The secondary private equity market refers to transactions of pre-existing investor commitments, and the demand of transferring shares of private equity exists in the secondary market of private equity. The essence of a secondary transaction is asset continuation rather than simple asset sale. Additionally, the seller of the share is not an investment institution. Before and after the asset portfolio transaction, the GP share remains unchanged.
Secondary funding has been enthusiastically sought after overseas, and has become an important tool to regulate the primary market in Europe and America for more than 30 years. Its main participants include many sellers, buyers and intermediaries, and have undergone three waves of growth. Ardian, one of the largest PE funds in the world with a management scale of $120 billion, completed fundraising of the world’s largest secondary fund of $19 billion in 2020, causing a sensation in the industry.
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China’s private equity market has experienced more than 30 years of development, and has exceeded 20 trillion yuan ($2.99 trillion) of market scale. However, due to the unique path dependence of VC/PE on IPO exits in the past years, secondary funding has always been in a marginal position in China. But in 2021, many experts think that it has entered an inflection point.
A senior individual in the secondary fund industry told 36Kr that in the secondary market of private equity in 2021, the scale of existing assets continued to rise. Affected by new asset management regulations, financial institutions are in urgent need of withdrawal and conversion, shares held by state-owned assets are gradually accumulated, and many funds are superimposed to enter the late period, which is driven by multiple factors. The will to supply assets is gradually formed. Secondary funds and various financial institutions constitute the largest buyer’s funds in 2021, which are converted into a significant level of actual transactions.