RMB private-equity funds grow in size and number

Citic Private Equity may have closed the biggest ever renminbi-denominated PE fund in January, but even larger ones are in the pipeline.
RMB private-equity funds grow in size and number

As renminbi-denominated private-equity funds gain in popularity, so ever-larger amounts of capital is being raised and non-Chinese managers are increasingly forming onshore RMB funds, says law firm O’Melveny & Myers.

The Rmb9 billion onshore vehicle closed in January by Citic Private Equity is the biggest RMB fund so far, but some firms have even larger funds in the works. These funds will also have offshore and onshore and components.

Many of the deals O’Melveny works on are stand-alone RMB funds or parallel funds that work together with an offshore fund in the Cayman Islands, says Larry Sussman, head of the law firm’s Beijing office.

Setting up an offshore fund is a relatively simple process compared to establishing an onshore one, he says. However, fund managers see it as a competitive advantage to have an onshore RMB fund, adds Sussman, and a growing wave of foreign managers are looking to raise all the renminbi for such funds from Chinese LPs.

Firms known to be preparing to close pure onshore multi-billion-dollar RMB funds with no offshore component include Blackstone Group, Carlyle Group, CLSA Asia-Pacific Markets, First Eastern Financial Investment Group, Kohlberg Kravis Roberts and TPG.

O’Melveny has also been working on venture-capital (VC) funds for what it says are the usual VC names – either offshore pockets or dual-pocket vehicles. These tend to be smaller deals, reflecting the smaller amounts of capital for those types of deal. It is working on one that will close in the coming weeks at around $100 million, a “reasonable” amount for the VC space, says Sussman.

He declined to reveal any specific names, but well known VC players include CNEI, DCM, DFJ, DT Capital Partners, Gobi Partners, GSR Ventures, IDG Capital, Keytone Ventures, Lightspeed Venture Partners, NewMargin, Northern Light Venture Capital, Sequoia and Softbank Asia Infrastructure Partners.

O’Melveny has also been active in South and Southeast Asia, having recently advised on Indian and Indonesian funds, including an Indian microfinance fund for Lok Capital.

“In India there are obviously some big players, mainly in the infrastructure space,” says Dean Collins, Singapore-based head of the investment funds practice for Asia. “In Indonesia, there are no billion-dollar funds; there are four main players there, and fund size ranges from $100 million to $500 million.”

Most of O’Melveny’s competition has focused their Asian investment funds teams around Hong Kong, while all O’Melveny’s lawyers are based in Beijing and Singapore, says Collins. But the firm plans to transfer at least one senior funds specialist to Hong Kong by early next year.

Hong Kong and Singapore are important in the PE context, he says, because firms with offshore funds typically need an entity outside China to ensure they have the right tax status.

Meanwhile, the law firm recently strengthened its 12-strong investment funds practice in Beijing with the addition of Zhang Xuan. Her practice will focus on offshore funds targeting China and the region, dual-fund structures and RMB funds.

Before joining O’Melveny, Zhang practiced law at a prominent international law firm in New York. She has seven years’ experience in the formation and operation of PE funds, including buyout, infrastructure, mezzanine, real estate and VC funds, as well as hedge funds and funds of funds.

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