Following closely in the footsteps of private equity rivals Carlyle and Blackstone, US firm TPG is preparing to raise US$740m for its first RMB-denominated fund in Shanghai. The fund will invest in China’s consumer, retail, financial and health-care industries and focus on medium to large-sized companies nationwide.
Global buyout firms are racing to launch RMB funds in an effort to carry out deals quickly in China. The trend towards localisation – using RMB to raise funds, make acquisitions and exit – has picked up momentum as the international status of China's currency has been enhanced in the wake of the financial crisis. “We are seeing a significant rise in the number of RMB funds,” said Walker Wallace, a partner in the China practice at O’Melveny & Myers.
According to lawyers, the advantages of RMB funds are clear – they can make investments without foreign exchange controls, they can raise funds from local investors (including high-net-worth individuals, onshore companies, government fund of funds, insurance companies and social security funds) and they can speed up the transactions because they are not weighed down by the baggage of foreign investment approvals. RMB funds allow them to tap into a mounting pile of cash in China, which is only poised to grow further.
Currently, there are over 400 purely domestic funds. The number of foreign invested venture capital (FIVCIES) funds has climbed to over 40 in the past two years, according to a report by O’Melveny & Myers. ALB