US private equity investments head for a decline, China pulls out

Chinese state-backed funds are retreating from investments in US private equity, according to several executives and individuals familiar with the matter. The decision comes in response to political differences between Washington and Beijing, which have both slapped tariff rates above 120% on goods from each other.

Sovereign wealth funds from the East Asian nation are shying away from making new allocations to private capital groups based in the United States. Seven executives from major private equity firms confirmed the pullback, with three attributing it directly to government directives from Beijing.

Executives said that some of the funds are even asking to be excluded from deals involving US assets, even if such investments are made through global buyout groups headquartered outside of America. 

Major investors take exit positions from US private equities

Among the state-backed investors scaling back is China Investment Corporation (CIC), one of the country’s largest sovereign wealth funds. Two individuals with knowledge of the situation, cited by the Financial Times, have confirmed CIC’s withdrawal, alongside similar moves by other funds.

Records show CIC had already started reducing its exposure to American private equity as early as 2023. While previously active in American markets, the fund is redirecting capital in Europe, the Middle East, and Asia. It has established partnerships in countries including the United Kingdom, France, Saudi Arabia, Japan, and Italy, in part to diversify its global portfolio.

Chinese sovereign funds are among the largest backers of US private capital firms, including giants like Blackstone, TPG, and Carlyle Group. Their investments helped expand the private equity sector, which now manages approximately $4.7 trillion in assets globally.

According to consultancy Global SWF, as of 2023, both CIC and the State Administration of Foreign Exchange (SAFE) had around 25% of their assets, totaling $1.35 trillion and $1 trillion, respectively, allocated to alternative investments. 

Regulations are unfavorable, managers cry

Chinese investors insist they are being treated unfairly by Western regulators, who they claim are using foreign influence and unwarranted claims of national security. Several governments worldwide, both in Europe and the West, are blocking Chinese capital from directly entering sectors like technology and infrastructure.

Even with such restrictions, indirect routes, such as through private equity, had remained open for years. Through such structures, Chinese funds were able to invest in American companies without taking controlling stakes or attracting immediate political attention.

According to the Financial Times, pension funds from Canada and Europe, strong supporters of US private equity, are also reportedly reassessing their involvement. Speaking during an earnings call last week, Blackstone President Jonathan Gray admitted that global clients are not happy about the current “tariff-ridden” political climate.

“There definitely are questions from global investors and clients about what’s happening here,” Gray explained.

Beijing ‘strangles’ US access to special minerals

Meanwhile, as economists had expected, Beijing has cut off several global minerals export supply lines. Chinese export controls on strategic materials like antimony, germanium, and gallium have now driven exports to historic lows.

All three metals are used in defense technology, chip manufacturing, and renewable energy systems. China is the world’s leading producer of each, and since 2023, it has steadily added them to a growing list of controlled substances.

According to Reuters, in December, Beijing officially banned exports of these materials to the US, expecting that President Donald Trump would impose trade laws that would affect its economy.

First-quarter exports of antimony and germanium products dropped 57% and 39%, respectively, compared to the same period last year. Although gallium exports increased quarterly over 2023, March shipments reached their lowest point since last October.

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