CMIA Capital Partners is targeting small and medium-size Chinese companies with the launch of a new $200 million private equity fund.

CMIA Fund IV, the Singapore-based firm’s fourth, will mainly focus on growth equity investments in Chinese agriculture, healthcare and pharmaceutical businesses. It will also invest in Southeast Asian companies and consider opportunistic deals in China’s consumer space.

Over the next three years, the fund will invest into eight to 15 companies, committing $5 million to $20 million, according to CMIA managing partner Lee Chong Min. The deals will be aimed at facilitating mergers and acquisitions, product line expansion and broadening geographic reach.

Agriculture will be a key focus for the fund as it has “tremendous potential” but is underserved, says Lee, who foresees China’s large population putting greater demands on farm yields that are being produced from a shrinking supply of arable land.

Fund IV has already invested in Emerald Asia, a China-based mushroom and fungi producer and processor that plans to publicly list in Shanghai or Shenzhen by 2014.   

Foreign investment in Chinese companies has come under the spotlight, with US hedge fund Paulson & Co recently selling its 14% majority stake in Toronto-listed tree plantation company Sino-Forest Corp at a loss after allegations from a research firm that it had overstated its timber holdings.  

CMIA says it puts emphasis on pre-investment due diligence, and is actively involved in the board and management meetings of its portfolio companies. “Often, our investment disbursements are tied in to certain business milestones”, which reduces the firm’s investment risks, notes Lee.

CMIA claims an average internal rate of return of 28% from its previous three funds, which have collectively invested more than $600 million in capital. The firm’s Chinese portfolio companies include Singapore-listed firms China Minzhong, a vegetable producer and processor, and property developer Ying Li.

Fund IV has attracted strong interest from the firm’s existing investors, which are located across Asia, the Middle East and Europe, says Lee.

“We also have US investors, but are still seeking clarifications on recent regulatory changes in the US,” he adds, referring to upcoming requirements for private equity managers with more than $150 million in assets, or with 15 or more US clients, to register with the Securities and Exchange Commission.  

Lee, a former trader at Cargill, founded the firm in 2003 with Anson Wang, previously a regional managing director at HSBC Asset Management in Hong Kong who now serves as CMIA managing partner.