Private equity manager Lunar Capital has made the first closure of its latest private equity fund, Lunar Capital Partners 3, having raised around half of the targeted fund size of $150 million.

The plan is to further increase the impact of that capital by bringing in a further sum of about the same amount by way of a co-investment pool. In that pool, Lunar investors would invest money directly into portfolio companies. Investors currently comprise family offices and smaller university endowments, and the fund manager is starting to see more interest from larger pension funds and funds of private equity funds. The fund has a 10-year life and targets a 35% internal rate of return (IRR).

Shanghai-based Lunar is in the course of doing three new transactions. The firm's preferred investments are forestry/agriculture, basic infrastructure materials and consumer necessities. The investment thesis centres around companies that spread urbanisation to China's second- and third-tier cities.

In the case of about a quarter of the firm's investments, there is majority fund ownership, but with two-thirds of companies in the portfolio, seconded management personnel are deployed.

The Lunar Capital Partners 1 fund stands at $10 million and has had an IRR of 60% over the past three years. The Lunar Capital Partners 2 fund is $50 million in size and is at the point of exiting investments and crystallising profits. Lunar does not charge performance fees until exits are realised. The charges for the new fund are a 2% management fee and 20% performance fee.

The Lunar team is split between Shanghai and Chengdu. The four partners are Lixun Gong, Kenny Zhang, Michelle Leung and Derek Sulger. Gong and Zhang came from Citi and worked with Sulger on previous investments before joining Lunar.

All four have been in Shanghai for most of the past decade. Leung and Sulger both worked at Goldman Sachs in the 1990s and then together in China, where Leung was chief operating officer of Tom Group, part of Hutchison Whampoa. She oversaw the due diligence when Tom Group looked at acquiring the Sulger-founded company, Linktone, a Shanghai-based telecoms services provider, which later went public.

Harvard man Sulger has lived in Shanghai since leaving Goldman Sachs in 1999, where he was an executive director.