China’s secondaries market currently offers abundant opportunities, with investors spoiled for choice, but specialised skill sets are required to identify undervalued assets or hidden gems, said Dennis Kwan, managing director of the private capital advisory at Jefferies Hong Kong, during a panel discussion at the Asia PE-VC Summit 2025 in Singapore on September 10.
Secondaries can be broadly divided into two categories: LP-led and GP-led secondaries. The former involves the sale of an LP’s stake in a fund, allowing the LP to exit and generate liquidity.
“We estimated that potentially there’s about $4 billion of LP-led secondaries that will be launching into the market in the second half of this year. Around 70% of that $4 billion will be China-specific deals,” said Kwan.
“Pricing-wise, it varies quite a bit. We have transacted on VC growth funds as little as 15 cents on the dollar and from 80 or 90 cents on the dollar for buyout funds, so it really comes down to the underlying asset quality and the fund managers themselves,” Kwan added.
While LP-led deals are growing, pricing and asset quality amid broader market uncertainty keep investors selective. Hong Kong’s IPO recovery provides some liquidity relief, but geopolitical tensions split USD and RMB strategies, with the latter increasingly tied to state priorities, speakers shared at a panel session titled ‘Can LPs ignore China despite macro headwinds?’
AI draws heavy interest, yet LPs remain wary of overhyped valuations, urging GPs to diversify and prove their ability to navigate both tech disruption and an evolving exit landscape.
HK’s IPO momentum
With PE exit value down 63% in 2024, Greater China’s challenging exit landscape is slowing down distributions, according to the latest Greater China Private Equity report released by Bain & Company.
These factors are in turn weighing on the market as fundraising by Greater China-focused funds remained muted, and the top 10 GPs accounted for 70% of the fundraising in 2024 compared to 30% in 2020, per the report.
Yet, signs of recovery are showing, as Hong Kong tracked strong public listing momentum so far this year. Through the first eight months of 2025, 59 companies went public—a 37% rise from the 43 listings in the same period last year—while initial public offerings raised $134.5 billion, a staggering 579% surge from the $19.8 billion collected a year earlier, according to data from the Hong Kong Stock Exchange (HKEX).
“The reopening of the Hong Kong IPO market is a significant development, because one of the key issues for investors in China in the last at least five years has been the lack of liquidity or lack of DPI,” said Kent Chen, managing director and head of Asia private equity at US-based private investment firm Neuberger Berman, during the panel discussion.
Distributed to Paid-In Capital, or DPI, is a key financial metric that tracks how much capital a private equity or venture capital fund has returned to its investors relative to the amount they originally committed.
Chen noted that, based on estimates, there remained some 200 candidates in the IPO pipeline, which could help address one of the most pressing challenges for investors in China. The aftermarket performance of these IPOs was also expected to be supported, and if the trend proved sustainable, it could encourage investors to return to the Chinese private equity market.
Neuberger Berman manages $538 billion of equities, fixed income, private equity, real estate and hedge fund portfolios for global institutions, advisors and individuals.
Diverging paths
The softened geopolitical tensions could be another sign that bodes well for China’s PE landscape. But the retreat of US LPs leaves USD funds to play safe investing across established sectors, while RMB funds, focusing on strategic sectors, are adapting to state-driven strategies or risk being left behind.
“The geopolitical situation, particularly around China, was much more pronounced last year. Since President Trump came in, the geopolitical situation for the world has become much more pronounced,” Vincent Hsu, partner of US-headquartered global private investment firm StepStone Group, said in the panel.
StepStone Group provides investment solutions and advisory and data services to its clients, with $199 billion of assets under management as of June 30, 2025.
Hsu noted that while China hadn’t gained from the situation, investors now saw global markets as increasingly unpredictable, adding that U.S. rhetoric toward China had recently softened.
At a time when US limited partners’ allocations to fund managers in Greater China have hit rock bottom, some of the US LPs have asked GPs to opt them out of China deals. When asked about his observation on such development, Hsu explained that there is now a clearer framework allowing U.S. investors to exclude themselves from such funds.
He noted that market participants have grown more accustomed to navigating investment restrictions, but added that although the process is implemented, it’s like “an honour system,” and ambiguity remains.
China’s state-owned holdings and state-affiliated LPs have taken centrestage for the RMB fund landscape.
“I think that 80% of the Chinese LP market is from the government guiding funds. There is a lack of institutional and long-term capital in China. That’s just the status quo. It’s very challenging for GP to raise industry-focused and market-driven funds,” said Frankie Fang, founding managing partner of Starquest Capital, a private equity and fund of funds (FOF) firm based in China.
USD- and RMB-denominated funds are operating in entirely different spheres. The former are playing it safe, sticking to established sectors such as healthcare, services, and retail, while the latter are pursuing China’s strategic priorities, semiconductors and electric vehicles.
Fang emphasised that Chinese GPs now face pressure beyond just financial terms, noting that raising a successful RMB fund without government support has become nearly impossible. As a result, he said, GPs must adopt distinct strategies to align with both USD and RMB LPs.
Founded in 2017, Starquest Capital counts Chinese state governments and state-run banks among its backers, with an initial AUM of around 30 billion yuan, according to its website.
Influx of Chinese VCs pushes AI funds
DeepSeek’s success has sparked an AI funding rush, with several Chinese VCs launching dedicated funds to capitalise on surging global interest. While this marks the start of an AI-driven era akin to the mobile internet boom, LPs remain cautious, questioning whether fund managers possess the technical expertise and industry depth to navigate the rapidly evolving sector.
“For the generalist versus the industry-specific funds, I would say we should be very careful as investors to the GPs who actually use such an industry-focused fund as a fundraising tool, or [whether] they actually have certain abilities or backbones to support this strategy,” said Fang.
Gary Hui, senior VP and head of Hong Kong office at US-headquartered global financial services firm Wilshire, said that the firm tends to favour generalist venture funds, especially those with a specialised team looking at specific sectors, partly because of the regulatory and geopolitical risk associated with investing in China.
“We believe that having a generous approach and a diversified portfolio is very important,” he added. Wilshire advises on over $1.5 trillion in assets and manages $125 billion in assets as of June 30, 2025.
Hui noted that many funds boast high Total Value to Paid-In (TVPI), but dismally low DPI. When evaluating funds, his team prioritises not just the DPI figure itself, but its quality—assessing the diversity of exit routes, the breadth of portfolio contributions beyond a handful of unicorns, and a GP’s ability to generate returns even in downturns.
Exits pose biggest challenge
Panellists have collectively agreed that exits remain the biggest challenge in China’s market. The relentless quest for cash returns is now powering a surge in China’s GP-led secondaries, which refers to transactions initiated by the fund manager, where one or more portfolio companies are transferred to a new vehicle—often a continuation fund—backed by a new group of LPs.
“Over to GP-led or the continuation vehicles, I think we are having at least one discussion with Chinese GPs on a daily basis. The reason is that they have been trying to generate DPI for their LPs,” said Kwan.
Zooming into the RMB secondaries market, the supply of secondary capital versus the opportunity is imbalanced, according to Fang.
“But I think just to get every RMB private equity deal done is very challenging, because the buyer needs to think about how they can exit that portfolio a few years down the road. So far, a lot of RMB secondaries have actually been completed by the US dollar investors. But locally, I would say, compared to the primary markets, a secondary market is still slowly in the making,” he added.
Asset quality remains a concern, too. Kwan suggests that uncovering hidden gems in the secondary market hinges on asset quality and the disruptive potential of AI. While many tech opportunities—particularly in sectors like SaaS—may appear attractively priced, the real question is whether these “older tech” companies can withstand AI-driven displacement or risk becoming obsolete.
What’s next?
Neuberger Berman’s Chen believes that there is something that the Chinese market can learn from Japan’s PE market, which is buoyed by succession-driven buyouts, carve-outs, and take-privates.
Japan’s PE boom is fuelled by governance reforms, activist pressure, and a fragmented corporate landscape. Meanwhile, Japanese LPs are evolving beyond primary fund investing, while GPs face a crowded field where value creation seems to be the key to winning deals.
“The key is that for China’s private equity market to be sustainable, you really need a domestic LP community,” Chen said.
Echoing Chen, StepStone Group’s Hsu expressed hope that Chinese GPs would begin to mirror the Japanese market’s approach, shifting toward more control deals— a strategy not yet widely adopted in China’s private equity landscape.
Wilshire’s Hui, however, saw AI and tech in China are drawing heavy investment, but warned that sky-high valuations demand caution. He urged GPs to explore opportunities beyond AI—like consumer and advanced manufacturing—noting that China’s market is too diverse to rely on a single sector.
