CITIC hits $1.3 billion for RMB fund

The Beijing-based private equity arm is a subsidiary of CITIC Securities, China's top brokerage, which is operated under the CITIC Group, the largest conglomerate in China and directly led by the State Council, China's cabinet.

Investors and commitments

With this relatively vast capital, the new CITIC PE fund is ostensibly the largest RMB-denominated fund ever in China, and the first to complete its fundraising out of the four other funds authorized to raise capital by the State Council during a recent second round of approvals.

About 50% of the capital was raised from the National Council for Social Security Fund (NSFF), China's state pension fund, as the single largest investor, with the remainder subscribed by large PRC financial institutions, such as social security funds, and public and private local enterprises, according to CITIC PE.

The successful closing comes about a year or so after the firm’s formation in June 2008, and took place during the onset of the global economic downturn, when most international private equity and VC firms struggled to raise funds.

Yibing Wu, President of CITIC PE, told AVCJ, “Surprisingly, we have investors who are new to private equity without having any experience as LPs before, but we felt the enthusiasm from investors in private equity while we were fund raising”, adding that the firm can help to educate the local private equity market.

According to AVCJ research data, despite its near 40% annual growth between 2003and 2008, the Chinese private equity market is still relatively small when compared to the size of the Chinese GDP (0.2% of GDP vs. 0.8% of GDP for the US in 2008).

Asked for the reasons for this success in fundraising as well as investment activities, Wu said, “I think that we have a strong institutional background with deep local roots, with our professional team comprising 60 members, of whom 40 people work with the investment and portfolio team. It is also that our investment committee is purely comprised of investment professionals.”

The firm’s size has doubled since its formation, with staff hired from leading global companies such as McKinsey & Co., GE and Proctor & Gamble. Wu himself is also an investment veteran who previously worked with Legend Holdings, overseeing overall business operations and investment activities. Wu is still a non-executive director of Lenovo Group, and sits on the advisory board of China Unicom, as well as the board of the China Social Entrepreneur Foundation. On top of this strong manpower, the firm also invited Lefei Liu as Chairman of CITIC PE from China Life Insurance Ltd, the largest local insurer, where he worked as Chief Investment Officer and General Manager of the Investment Management Department.

Sector specifics

With primarily sector focuses on financial services, consumer goods, energy and resources, and manufacturing, the firm to date claims to have closed 10 deals with a total transaction value of more than RMB 2 billion ($293 million). Portfolio companies include Kuaijishan, the oldest Chinese liquor brand, and Wind Info, a rising star in data management. Altogether, the team collectively possesses a strong investment track record; in fact, the value of private equity investment transactions led or supported by the members of the Investment Committee totals over RMB 76 billion ($11.1 billion), according to a statement.

Wu said, “When we look at target companies, we will see if there would be any space for a target company to create value, and of course, we study the fundamentals of the business.” The firm’s investment strategy is to take minority stakes in companies (likely between 20-40%). Wu said the firm does not believe in control acquisition in the local market, but investments could add value to portfolio companies with their management support and understanding. “Local people like having institutional management with a background of strong local characteristics,’ he added.

Overall Wu’s views on investment opportunities in China are very positive, partly because of the government’s intention to promote local private equity players. But as to what would happen to existing foreign players as local GPs enhance their track records, Wu said, “Foreign private equity players are dominant factors, but we see a clear trend in favor of domestic GPs, emerging as fully competitive forces with world-class talent competing in private equity investments.”

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• Topics
• Fundraising
• Renminbi fund
• Greater China
• People