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China-Focused Private Equity Funds: Comparing Proportions of China-Based and Offshore Managers

by Wan Ping Chia

  • 17 Feb 2012
  • PE
  • RE
  • INF

In 2011, 76 funds closed that have an exclusive focus on mainland China - including real estate and infrastructure funds, attracting over $24bn from investors.  Of these vehicles, a significant 78% were raised by mainland China-based fund managers and 11% were raised by other Greater China based firms in Hong Kong and Taiwan. Four percent were raised by GPs located in US, while the rest were raised by fund managers from other countries, including Singapore, UK, Germany, Australia and Japan.

Of the China-focused funds that closed in 2011, the largest private equity vehicle is managed by buyout specialist, Hony Capital. The fund, Hony Capital RMB Fund II, closed with $1.57bn and targets opportunities across various sectors.

With a fund size of $1bn, Macquarie Chinese Real Estate Fund II ranks the largest amongst China-focused funds raised by offshore GPs. It is managed by Australian manager, Macquarie Infrastructure and Real Assets.  Followed by this is Orchid Asia V; a $650mn growth fund managed by Hong Kong-headquartered Orchid Asia Group Management. The third largest China-focused fund raised by a foreign GP is Prologis China Logistics Venture 1, a $588mn real estate fund managed by Prologis Private Capital, which is headquartered in the US.

At present, there are 112 exclusively mainland China-focused funds currently on the road, including real estate and infrastructure funds. In total, these vehicles are seeking to garner over $43bn in capital from investors. Compared to funds closed in 2011, there is a considerable increase in the number of offshore fund managers currently raising capital. Of the China-focused funds currently in market, 59% are managed by China-based GPs, 17% by US-based managers, 13% by Hong Kong-based managers, and the rest by GPs situated in the UK, Singapore, Israel, Japan, Canada, Germany and Switzerland.

AgBank (Wuxi) Private Equity Fund is seeking CNY 15bn ($2.32bn), making it the largest exclusively China-focused vehicle on the road. The fund is managed by Hong Kong-headquartered ABC International Holdings, in collaboration with Wuxi Guolian Finance Group. It acts as an investment platform of ABC International Holdings and Wuxi government, seeking opportunities in growth stage companies.

The second largest such vehicle in market is CITIC Private Equity Fund III, a China-focused growth fund managed by CITIC Private Equity Funds Management, which is aiming to garner CNY 10bn ($1.55bn). Elsewhere, Guochuang Kaiyuan Fund of Funds also has a target of CNY 10bn. The vehicle is a joint venture between China Development Bank and Suzhou Ventures Group and intends to aid the overseas expansion of Chinese enterprises. The fund has two portions that target buyout and venture opportunities separately. CCB International Asset Management, a Hong Kong-based GP, is also raising a CNY 10bn vehicle named Sichuan Industrial Investment Fund I. It is a growth fund set up in collaboration with Sichuan Development Holding to develop the economy of Sichuan.

The abundance of opportunities arising from the opening up of the Chinese market has led to an increase in the number of China-focused funds. In addition, the establishment of the Qualified Foreign Limited Partner (QFLP) programme by the Chinese government is lowering the barrier for foreign LPs to invest in CNY-denominated funds. With more investors being approved by the QFLP programme, we expect to see more offshore managers collaborating with the Chinese authorities to raise exclusively China-focused vehicles to attract foreign investments into the market over 2012.  

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