Capital International has closed a $3 billion emerging markets private equity fund, with one-quarter of its investor base hailing from Asia, according to James McGuigan, managing partner for the firm’s PE funds.
Capital International Private Equity Fund VI (CIPEF VI) took 15 months to meet its hard cap of $3 billion, exceeding its fundraising target of $2.5 billion, says McGuigan. It has a targeted 20% internal rate of return.
About 90% of the investors in predecessor Fund V – which closed in 2008 at $2.25 billion and is fully invested – re-upped for the new vehicle, which was oversubscribed, he adds.
Asian investors in Fund VI represent 25% of total capital and include sovereign wealth and pension funds, says McGuigan. The US comprises half of total fund assets, with the remainder from Europe and the Middle East. In all, more than 60 institutional investors allocated to CIPEF VI.
The strong demand stems from continued interest in emerging markets, given their growth potential, says McGuigan. “Emerging markets, China in particular, are delivering accelerated growth. [They represent] half the global economy but two-thirds of GDP growth.”
The fund has no set allocation amount to China, or any other Asian markets, but will instead seek out “market-leading companies”, he says. “We’re looking for well-managed, family-owned or entrepreneurial-run companies that are looking for a partner to help bring in [expertise] and help grow the company.”
Within the region, China, India, Southeast Asia, Indonesia and Taiwan will be scouted for deal opportunities in the form of minority investments. Favoured companies include consumer businesses that sell to the rising emerging market middle class, and commodities exporters, says McGuigan.
CIPEF VI has already made three investments, including L&T Financial Holdings, an Indian equipment and infrastructure finance company. A total of 15 to 18 investments will be made, with an average holding period of four to five years.
Fund V had invested in three China companies, including Guangdong-based Pacific Textiles, a manufacturer of customised knitted fabric. Fund IV, which closed in 2004 at $610 million, invested in two mainland businesses.
“We’ve done quite a bit [of deals] in China,” says McGuigan, “and we’re still interested in doing more.”