May 8, 2012 / 5:27 AM / 7 years ago

China ruling on funds sourcing a blow to foreign private equity: WSJ

(Reuters) - China’s top economic-planning agency, in a setback for foreign private equity funds, has ruled that all capital in a yuan-denominated fund must come from local Chinese investors, failing which the funds will be treated as foreign, the Wall Street Journal said.

Being treated as foreign will restrict overseas private equity funds’ investments, at a time they face increasing competition from local funds.

The statement from the National Development and Reform Commission specifically cites a fund run by Blackstone Group LP (BX.N), which could have benefited from getting local status for a five billion yuan ($795.4 million) fund it is about halfway through raising, the paper said.

Foreign private equity firms had been banking on their yuan funds being treated as local even if up to 5 percent of the fund’s capital came from outside of China, the Journal said.

Fund managers typically contribute some of their own money toward the fund, usually between 1-5 percent of the fund’s total value, the paper said.

Foreign private equity funds are not allowed to invest in sensitive industries, such as defense-related companies, and face restrictions on investing in telecommunications, education and the Internet, among others, the Journal said.

In 2011, yuan funds raised $23.4 billion, topping the $15.4 billion raised by dollar funds, the paper said.

Blackstone declined to comment to the Journal on how much of its own money is in the yuan fund. The U.S. private equity firm could not be immediately contacted by Reuters outside of U.S. business hours.

The commission’s statement was dated April 23 and was reviewed by Journal, the paper said.

Reporting by Meenakshi Iyer in Bangalore; Editing by Muralikumar Anantharaman

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