This week in asset owner history: CIC, Illinois Teachers active in Asia-West PE partnership
At a private equity and venture forum back in November 2014, China’s sovereign wealth fund - China Investment Corporation (CIC) - said it was willing to act as a bridge to connect Chinese companies with overseas investors, and foreign companies with opportunities in the mainland.
Back then, CIC’s head of private equity, He Linbo, said there was a positive environment for Chinese companies looking to move offshore, given the thirst for capital – most notably in Europe.
“There are still quite a number of capital-strapped companies with two things: advanced technology and well-known brands, especially in Europe,” he noted, and these will be the focus of Chinese companies’ foreign-buyout activities.
Noting that two-thirds of assets in the private equity industry in 2014 were un-exited investments done since 2005-06, CIC’s He noted that private equity sponsors that have to exit after a number of years may partner with Chinese companies that want to invest overseas.
Eight years on, the landscape for Chinese companies to invest overseas has changed dramatically. In the technology and internet sector, swamped by the worsening of Sino-US relations, the pandemic in recent years, and the regulatory clampdown in China, Chinese enterprises have slowed down overseas investing and listing activities.
During the period, CIC’s assets under management grew from $746.7 billion by the end of 2014 to $1.35 trillion as of end-2021, with the portion in the private market expanding from 26.2% to 47%.
In private equity specifically, CIC has established partnerships with general partners across the world to invest in technology, technology, media, and telecom (TMT), healthcare, consumer, advanced manufacturing, and fin-tech, according to its 2021 annual report released on November 11.
“Over the last 15 years, CIC has developed a strong network of high-quality investment partners around the world. Close cooperation with our partners remains the key to ensuring the high quality of our overseas investment business,” CIC said in the latest annual report.
Meanwhile, at the same forum in 2014, Kenyatta Matheny, who co-ran the private equity portion of Illinois Teachers’ Retirement System, had seen more cross-border partnering taking place between private equity firms in Asia and the US, in both directions.
“This has been more recent, within the past 12 months, where there may be an Asia-specific PE fund with an asset that can continue to scale, but they’re looking to exit,” Matheny said back then. One route for them had been for an international private equity firm to take on the asset and expand it beyond China to other markets, such as Southeast Asia.
“With an asset that has 5-10% exposure to China, we can pick up the phone and call counterparts in Asia. We’ve scaled the asset via acquisitions at home,” Matheny said.
Matheny was very positive in the region. “If you’re building a global private equity portfolio, you would be remiss to not earnestly look to having an allocation to Asia and, quite frankly, with China as the anchor.”
In October 2014, Illinois Teachers established a partnership with a large Asia-focused private equity fund-of-funds manager Asia Alternatives and committed $200 million to the manager.
This followed a period of 18 months to two years spent developing the relationship, Matheny noted. Illinois Teachers had spent some three years visiting Asia to understand the landscape in the mid-2000s and subsequently made direct investments in private equity funds and sought a local investment partner.
However, with Sino-US relations worsening in recent years, US-based asset owners’ investment in China has slowed down significantly, especially after the regulatory crackdown in China since late 2020. For American investors, it is now “politically incorrect” to invest in China’s private equity and venture capital funds, among other macroeconomic and political factors, the founder of a Beijing-based venture capital firm told AsianInvestor recently.
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As of the end of June 2022, Illinois Teachers’ Retirement System managed $62.2 billion assets, with $10.2 billion in private equity. In 2022, most of its new commitments were made into US-based private equity funds, with about $275 million invested in Hong Kong-based private equity funds, including Baring Private Equity Asia Group, Gateway Capital, and Dignari Capital Partners.