Private equity firm Saif Partners will come to market this month with its first hedge fund, a Greater China-focused long/short strategy targeting $500 million, say sources.
The SPQ Asia Opportunities Fund, will invest in companies with substantial exposure to the Chinese economy through either having earnings or a large base in Greater China, according to documents seen by AsianInvestor.
The strategy may also invest in firms that derive revenues or earnings from or are located in other regions, "so long as they are market leaders in their sector". It intends to focus on investing in companies with market capitalisations bigger than $400 million – in short, large- and mega-cap opportunities.
News that Saif was planning to launch a Greater China hedge fund emerged a year ago, but capital raising in the recent environment has proved notoriously tough. Market volatility – combined with events like the US shutdown and poor economic data coming out of China – are slowing investors' due diligence, especially for new hedge fund start-ups based in Asia, note market participants.
Sources say Hong Kong-based Saif has been running the strategy with internal money for more than a year and had been looking to launch it with seed capital from one of its main investors.
Beijing-based partner Brandon Lin, who joined Saif from Credit Suisse in 2001, is leading the initiative, say sources. Saif, one of China's biggest home-grown PE firms with $3.5 billion in AUM, also has local teams in Changhzou, Harbin, Hong Kong and Shanghai, as well as India.
The firm is thought to have had interest in investing in public markets for some time, with one source saying it goes back to Saif's investment in China Huiyan Juice Group in mid-2010.
Saif declined to comment for this article.
Other private equity players – such as CDH, Hony, KKR and TPG – have also made public investments that are usually covered by hedge funds. Such investments are not generally encouraged by the more conservative private equity LPs, which tend to prefer deployment into private assets rather than public ones.
Yet from a pricing perspective, it sometimes makes sense for PE investors to invest in deals involving, for example, public investment in private equity (PIPE) or convertible bonds, says Geoffrey Chan, a partner at law firm Ropes & Gray in Shanghai.
There are some listed companies trading at trailing 12-month multiples that are in some cases significantly lower than the prices that their privately held peers are still asking for on a forward-multiple basis, he notes.
“That is hard to justify, especially if you take into account the liquidity premium that should be applied to the value of such investments into public companies, as well as the benefit of (usually) better access to diligence materials,” says Chan.
“The private companies will offer arguments such as better management, or that the privately held nature of their companies allows them to stay one step ahead of their competitors on product pricing.
“The funds really have to take a hard look at these arguments – for example, pressure on profit margins for public companies – especially if the same sponsors are also relying on IPOs as the main pathway to their future exit if they were to invest into such private companies.”