China Investment Corporation (CIC) is teaming up with a fellow sovereign fund in Belgium for a growth capital vehicle that will give Chinese investors exposure to Europe.
The A Capital China Outbound Fund is the result of a partnership between CIC, Belgian Federal Holding Investment Company and private equity firm A Capital, which will manage the fund.
A first close was recently held at an undisclosed sum. André Loesekrug-Petri, managing partner of A Capital, says it is a “substantial amount” of the fund’s soft target, which is €250 million. Its hard cap is set at €500 million.
The amounts committed by CIC and the Belgian sovereign have not been disclosed.
The fund, which will invest alongside Chinese private or state companies, aims to take minority stakes in mid-sized European businesses in industries that have strong growth potential in China. Its main sectors of interest are high-end manufacturing with a focus on transportation, consumer goods, and environmental technology, says Loesekrug-Petri.
“We only target firms that are doing well,” he notes. “They don’t really need money, but they need a solution on how to grow in emerging markets.”
The deals will help to bring in “an investment partner which can help them accelerate in China”, says Loesekrug-Petri, whose firm, A Capital, has a team of 14 across offices in Beijing, Shanghai, Paris and Frankfurt.
The partnership comes as Europe, the single biggest export market for China, continues to tackle a sovereign debt crisis that has become a drag on the continent’s economy. A panel of top private equity executives at the Milken Institute 2012 Global Conference in Los Angeles this week deemed Europe a difficult market in which to invest, given its heavy regulation.
Panellist Jonathan Nelson, chief executive of US-based Providence Equity Partners, noted that Europe, which used to comprise 40% of his firm’s investments, now accounts for 10%, with a step-up in emerging markets deals filling the gap.
Family offices in Europe have expressed interest in the fund, says Loesekrug-Petri, as it offers them a way to invest domestically, and at European risk levels, “with Chinese upside”.
The China Outbound Fund has also attracted attention from fund of funds and private wealth channels in the US, Europe and Asia, he adds. "There’s a lot of money on the side which has not been invested in the last three or four years but which is looking for original investment strategies."
CIC’s European deal closely follows news of a joint-venture fund with BlackRock that is being viewed as a vehicle that will enable the sovereign to invest in outbound private equity-style deals in overseas industries that would benefit China.