FountainVest in rapid fundraise

The vast majority of investors in Fund I, which attracted commitments of $950 million in 2008, re-upped for the new vehicle. This included anchor LPs Ontario Teachers' Pension Plan (OTPP), Canada Pension Plan Investment Board (CPPIB) and Temasek Holdings. Washington State Investment Board was another substantial contributor, committing $150 million.

Overall, North American and European institutional investors contributed the majority of the funding, while pension funds remain the largest investor type. Even though FountainVest China Growth Capital Fund II exceeded its $1.25 billion target and reached the hard cap, Frank Tang, the PE firm's CEO, says that fundraising was more challenging than for the previous vehicle.

"I found the current fundraising environment to be tougher with investor due diligence requirements more demanding than five years ago," he tells AVCJ. "There are also many terms in the limited partnership agreement (LPA) that moved significantly to become more LP friendly. We actually made some meaningful changes."

The fund strategy, however, remains largely the same. FountainVest has more capital at its disposal so the $50-75 million typical ticket size may increase, but the targets are still private enterprises entering high growth stages. The major investment themes are also unchanged: the rise of the middle class and domestic consumption, urbanization and industrialization, and sustainable development.

Tang notes that backing companies entering high-growth stages means bolt-on acquisitions are common. Indeed, three of FountainVest's investments were in part driven by the targets needing capital and support for acquisitions.

At year-end 2011, FountainVest's portfolio was marked at 1.5x, with two exits - one full and one partial - over the 12-month period generating an approximate gross IRR of 80%. There were 10 companies in the portfolio in May. The PE firm has since become involved in two management buyouts of US-listed Chinese companies: a $3.5 billion bid for advertising firm Focus Media alongside four other GPs; and a $63.3 million bid for jewelry retailer and wholesaler LJ International.

"Everybody has been looking at these types of opportunities," Tang says. "The challenge of the last couple of years is the psychological hurdle the entrepreneurs have to get over to accept a privatization. They like to be listed and are not happy about the idea of de-listing, but now more high profile companies are doing it, it seems to be the right thing."

FountainVest was set up in 2007 by Tang, George Chuang, Chenning Zhao and Terry Hu, all of whom were previously members of Temasek's China investment team.

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• Topics
• Fundraising
• Greater China
• Fountainvest Partners
• Fundraising
• China