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Chinese private equity targets record fundraisings

Chinese private equity funds are targeting record fundraising this year as global investors boost their exposure to the country despite US tensions and heightened regulatory scrutiny of its technology groups.

A group of fast growing Chinese investment funds, which include Boyu Capital and Primavera Capital Group, have launched what are expected to be their largest ever US dollar funds in recent weeks.

Boyu, which is co-led by the grandson of former Chinese president Jiang Zemin, is targeting a new $6bn fund, according to several people close to the plans. Primavera, run by Fred Hu, the former chair for greater China at Goldman Sachs, is raising a new fund of up to $5bn, two people close to the group said.

The funds would be the largest and second-largest US dollar funds launched by an independent investment manager in China, according to data provider AVCJ.

Meanwhile, FountainVest Partners, which targets China deals and is led by former Goldman Sachs banker Frank Tang, is seeking to raise $3.5bn for a new fund, according to two people with knowledge of the plans.

The flurry of fundraisings come amid China’s strong economic recovery from Covid-19 and concerns over high valuations in public markets.

They follow similar large-scale moves by regional and global funds focused more widely on Asia this year. Hong Kong-headquartered Baring Private Equity Asia last month opened a new fund seeking $8.5bn, while Hillhouse Capital, also based in Hong Kong, is raising what would be Asia’s largest US dollar fund targeting $13bn.

On Tuesday, US-based KKR announced it had raised $15bn for its fourth Asia Pacific fund — a record for a fund in the region — exceeding its $12.5bn target.

“Companies across Asia Pacific are recognising their potential to become not only national and regional champions but also global leaders in their industries,” said Ashish Shastry, KKR co-head of private equity in Asia Pacific.

One wealthy Asian investor, a member of one of the region’s most influential families, said China’s domestic PE market was developing extremely fast, particularly US dollar funding. “[Funds’] bets have begun to show a lot of promise and in many cases, success,” the person said.

The fundraisings are also a sign of the appetite of investors from the US and Middle East for Chinese companies, particularly in tech and healthcare, according to several people close to the funds.

The deluge of new capital focused on China comes despite heightened regulatory scrutiny of Chinese technology groups that could dampen the outlook for the sector, as well as an escalating sanctions row between Washington and Beijing.

“We have seen a big increase in allocation in recent months and we saw an unprecedented amount of USD coming into the fund last year,” said the founder of a large Chinese private equity fund. “We are expanding fast, we even had to ask some of our investors to cut their subscriptions,” he added.

The recent surge has more than doubled the average fund size in China to $756m, compared with $415m in 2020, according to data provider Preqin. It also bucks the trend of declining capital raising among Asia funds in recent years.

Fundraising activity declined for the third consecutive year in 2020, according to a report by consultancy Bain. Asia-focused funds raised $90bn last year, Bain said, 64 per cent lower than a peak in 2017. However, private equity-backed deals in the region rose 19 per cent to a record $185bn in 2020, according to Bain.

Boyu and Primavera were both early investors in Jack Ma’s Ant Group and have continued to invest in Chinese tech start-ups.

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