Private equity's Rockley Group signs with Shanxi

Technology financer Rockley Group has launched a second onshore China vehicle, inking a deal with Shanxi Small and Medium Enterprise Investment Corporation (SSMEIC), a high-tech venture fund owned by the Shanxi provincial government.

The move doubles the size of Rockley's China venture-capital fund to $200 million. The new Shanxi Zhongying Rockley Fund will invest $100 million, with 60% committed by Shanxi province and 40% by Rockley, into established technology companies in areas such as energy, environment, information technology and health and safety.

The fund’s strategy is to exit deals via initial public offerings or strategic sales within two to five years.

SSMEIC will provide access to development capital, deal flow and advice on regulatory issues. Technology management and further investment opportunities will be sourced from Rockley Group.

Rockley’s new Shanxi fund is a replication of its previous deal signed with the Shandong government last year, the $100 million Rockley Luxin Fund. Rockley owns 62.5% of that, with Shandong High-Tech Investment Corporation (SDHTIC) and Shandong Academy of Sciences holding the remaining 37.5%.

Rockley has favoured these tie-ups with local governments in China, because “government is a huge part of the industrial sector”, says its group chairman, Andrew Rickman.

The Chinese government runs investment funds, owns big companies and decides major industrial policy. With provincial governments owning significant or majority stakes in the funds with Rockley, they bring an understanding of legal and commercial issues, as well as local relationships. “They can help pre-qualify some deals,” Rickman says.

The funds also have investors from funds of funds and family offices from both mainland China and overseas. Rockley funds aim to deliver a long-term IRR of 35%.

Under Chinese capital constraints, the two funds are set up as foreign-invested venture capital enterprises (FIVCE), which allows co-investors to use onshore or offshore vehicles for investments denominated in renminbi and dollars, respectively. The fund manager has the flexibility to invest as an onshore entity.