Industry Q&A: TPG Capital

Q: TPG announced the launch of, not just one, but two RMB funds. What will the relationship between the TPG Western China Growth Partners I fund, based out of Chongqing, be to the TPG China Partners I vehicle out of Shanghai?

JC: The two funds are essentially different regional funds, which is important as large opportunities can be invested in together. What this does is two things: first, it allows us to focus regionally and, second, in the event that an opportunity arises which we can't invest in with our global fund because of restrictions, these two funds can invest together.

Q: In light of the government's support of the RMB vehicles, will the Chongqing fund's deal sourcing initiatives be through your own team or through your relationship with the government?

SW: I think it will be a bit of both. Obviously there is a high chance we will source nationally, but we will put an office here and we will develop strong relationships, and, as it had been mentioned, the government will treat us as very close partners. This [will help our] pipelines. We believe that Chongqing, compared to other cities, has a higher percentage of companies that are going IPO, which makes it an attractive base for our RMB fund.

Q: Why did TPG decide to launch its fund from Chongqing?

SP: There were a lot of discussions with the team about when we should move and what the right strategy was. Through those discussions we ended up meeting with all the major governments from regions that could be sponsors of our fund. Out of our numerous meetings we were able to better and better understand what their interests were and what the regional opportunities are.

SW: Chongqing feels like it is the gate into Western China. It just made sense. Especially in China, leadership is really important, and in this city you've got a mayor who is both a renowned economist and financial expert. You've got a well-respected Party secretary and a central government dedicated to making Chongqing the leader of Western China because it can only develop. The combination of the developing opportunity and strong leadership make it very attractive from our point of view.

Q: TPG has had a presence in China for 15 years, and while you've been able to accomplish significant milestones, your relationship with the market has had its ups and downs. With this in mind, what will you do differently when managing these new RMB funds?

JC: As we look at some of the ups and down of China, our path has been mostly ups. That has been caused by a couple of things. First of all, the regulatory environment has improved, so there are a lot of things that are much easier today than [they were] in the past. The second thing is that for private equity to work there needs to be functioning capital markets. This is important because [capital markets] help companies coming in. If there is not an exit route available then there is no reason for a company to go there. So the progress that everyone understands globally has been based on the development of China's capital markets - it has really progressed in that aspect.

If we look to the next 15 years, this economy, like all economies, will have cycles, but the structural underpinnings are very positive for private equity. The other important thing for this market is that it needs government support, and what we have heard on a national scale is a commitment to building private equity. I think that's very different to 10 or 15 years ago.

Q: What benefits do you expect to bring to China and the region through the launch of these funds?

JC: First of all, our local team is very experienced in the local markets, and similar to any local private equity fund, we can manage our fund on the ground. What we look to do is improve operational efficiency. We can bring local companies and their supply leaders and their supply chain management up to speed. Aside from thinking about it as a fund, we're also a $100 billion industrial group. When Chinese companies go to GE to learn about how to bring a product to market, we have those same capabilities - we bring capital, operating experience and sector knowledge. Our disadvantage in the market place was that we didn't have RMB-denominated capital, which meant we couldn't invest in companies. Now we do.

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• Topics
• Renminbi fund
• Greater China
• TPG Capital