Chinese HNW investors want to put more money into areas such as private equity around the world but their government's capital controls are causing them a headache.
Currency controls are making it tough for Chinese high net worth individuals to hold dollar-based private equity and venture capital to spread risks, even though they are increasingly interested in such a move, a report said.
Converting renminbi into dollars is capped at the equivalent of $50,000 per person per year, which is a problem when many private equity funds require at least a million or more dollars of investment, according to the South China Morning Post.
“We continue to see substantial demand from Chinese investors in the global private equity asset class,” Seungha Ku, managing partner for private equity investment at CreditEase Wealth Management in Hong Kong, was quoted as saying. "However, Chinese family offices and high net worth individuals face the challenge of high minimum investment amount, as high quality private equity funds often require a minimum investment of $10 million. The currency conversion limitation has compounded such challenges they face,” said Ku.
He added that many private equity managers do not have a problem raising capital for their funds, with or without Chinese investors, since cashed-up US and European pension funds and insurance groups are always lined up to invest.
The number of Chinese with at least RMB10 million to invest rose from around 180,000 in 2006 to nearly 1.6 million in 2016, the newspaper quoted a recent report by consultants Bain & Co as saying.
A separate report by McKinsey in May this year estimated that 10 per cent of the wealth of China’s high net worth individuals is now kept offshore, the SCMP added.
Chinese authorities have curbed capital flight in recent years, although such restrictions arguably are at odds with the country's longer term goal of making the renminbi, aka the yuan, a global reserve currency.