SAIF’s Andrew Yan Says Chinese Government Funds Distort Market

Andrew Yan, managing partner of US$4.9 billion-under-management Chinese private equity firm SAIF Partners, has warned that the growth of government-backed investment funds is distorting and potentially destabilizing the market.

"Government-backed funds are not market driven and do not follow market oriented pricing norms. With more government guidance funds and government-backed vehicles, the market will become increasingly disordered," Yan told Chinese media.

The former World Bank economist and ex-executive at AIG Asian Infrastructure Funds also warned of the potential financial risks of government-backed funds. "These funds are all financed or guaranteed by local governments’ fiscal budgets, with some even receiving financing from banks. These type of financial arrangements will eventually face grave consequences (when losses appear)," he added.

Government-backed funds do offer benefits for private equity and venture investors by providing another exit channel, Yan admits, but cautions that the negative impact outweigh the benefit by a large margin.

As to 2017, Yan said that the amount of government capital inflow to the market will determine if valuations continue to rationalize, as they have been over the past year. He refused to provide any predictions as to if and how much new capital the government will deploy into investment vehicles in the future.

"The market will not stay crazy much longer and must return to rationality. Valuations are still high right now, with massive dumb money coming into the market," he said.

SAIF has focused on the smart hardware, artificial intelligence, corporate services and healthcare sectors in its investments in 2016, including backing Chinese genetic start-up GrandOmics.

Caishen.Co - Primary Data for China Secondary Investment and Stock Markets
Nina Xiang is the co-founder and managing editor overseeing editorial content and product development at CMN. Before founding CMN in 2011, Nina worked at BusinessWeek magazine in Beijing and Institutional Investor magazine in New York, writing about business and financial services. While in New York, she also served as part-time correspondent for Shanghai's financial television channel, China Business Network, as well as China Radio International, China's national English-language radio network.