China Investment Corporation (CIC) and Illinois Teachers’ Retirement System have been talking up the benefits of private equity investors and managers collaborating on cross-border deals.

At AVCJ’s Private Equity & Venture Forum in Hong Kong this week, China's sovereign wealth fund said it was keen on facilitating European deals, while the $46 billion US state pension spoke about its recently agreed partnership with a PE fund-of-funds manager and the types of tie-ups it was seeing.

CIC’s head of private equity, He Linbo, said the sovereign wealth fund is willing to act as a bridge to connect both Chinese companies with overseas investors, and foreign companies with opportunities in the mainland.

Offshore investment by Chinese companies had shifted away from state-owned enterprises investing in energy and commodity-related sectors. High-technology and telecoms accounted for the biggest share of offshore investment deals done by Chinese companies in the first half of this year, followed by real estate and financial services.

There's a positive environment now for Chinese companies looking to move offshore, added He, given the thirst for capital – most notably in Europe. “There are still quite a number of capital-strapped companies with two things: advanced technology and well-known brands, especially in Europe,” he noted, and these will be the focus of Chinese companies’ foreign-buyout activities.

The PE industry is now $3 trillion in size, He noted, with one third of that being new money and two-thirds unexited investments done since 2005-06. In that context, He noted, PE sponsors that have to exit after a number of years may partner Chinese companies that want to invest overseas.

Meanwhile, Kenyatta Matheny, who co-runs the PE portion of Illinois Teachers, has seen more cross-border partnering taking place between PE firms in Asia and the US, in both directions.

“This has been more recent, within the past 12 months, where there may be an Asia-specific PE fund with an asset that can continue to scale, but they’re looking to exit.” One route for them has been for an international PE firm taking on the asset and expanding it beyond China to other markets, such as Southeast Asia.

Matheny has also seen such deals originating outside Asia. “With an asset that has 5-10% exposure to China, we can pick up the phone and call counterparts in Asia. We’ve scaled the asset via acquisitions at home.”

Matheny is very positive on the region. “If you’re building a global private equity portfolio, you would be remiss to not earnestly look to having an allocation to Asia and, quite frankly, with China as the anchor,” he said.

The Illinois fund last month struck a partnership with Asia Alternatives, one of the biggest Asia-focused PE fund-of-funds managers with $3 billion in AUM. At the end of October it approved a $200 million commitment to the manager. This followed a period of 18 months to two years spent developing the relationship, Matheny noted.  

Illinois Teachers had spent two or three years visiting the region to understand the landscape in the mid-2000s and subsequently made direct investments in PE funds and sought a local investment partner. It now has $5 billion of assets invested in private equity and another $3 billion of unfunded commitments, amounting to an $8 billion portfolio overseen by Matheny.

He was effusive about the benefits of the relationship with Asia Alternatives. “We think alike, we’re looking at the same managers, underwriting from the same perspective, but wow you’ve got this piece that we don’t have: you can access small managers, you’ve helped fund a few start-ups” he said.