One of China's largest LPs, the National Council for Security Fund (SSF), has signed a strategic partnership with eFront, a software & services provider to the financial industry, to automate analysis of potential foreign investments. The size of the contract was not disclosed.
“[The SSF] now wants to move forward and start investing in foreign GPs so they want to put a system in place,” said Tarek Chouman, eFront's managing director for Asia & the Middle East.
“They want a full screening process for foreign GPs. Not only looking at GP track record, but also a full scorecard inspired by best practices of the market, before investing in a fund.”
Once an investment is made, the SSF expects the GP will likewise have an automated software system that allows them to report back on the investment.
“It's important because they don’t want to exchange emails with GPs,” Chouman said. “They want something automated from end to end.”
EFront’s other clients include major sovereign wealth funds such as the Abu Dhabi Investment Authority (ADIA) with $627 billion in assets and the Government of Singapore Investment Corporation (GIC) with $247 billion in assets.
In China, the company works mainly with GPs. The adoption of data management technology in line with global best practices is an additional sign that China's private equity industry is bifurcating, Chouman said.
Domestic GPs with a strategic approach are asking for the ability to access key performance indicators – charts about investments, currency, geography and sector exposure and risk. The other part of the industry is facing a shakeout.
“There are probably too many GPs and we see a consolidation soon. People are struggling with fundraising or not being able to move forward with what they raised or end up with one small fund,” Chouman said.
China’s major private equity players “will establish a big gap between themselves and smaller GPs, who will just vanish”.