China's CDH seeks $2.5b for sixth US dollar fund

The GP has yet to set a hard cap, according to sources familiar with the situation. Fund V had an initial target of $2 billion – a step up from the $1.46 billion raised for Fund IV – and CDH ended up increasing the hard cap slightly from $2.5 billion in order to accommodate investor demand.

This apparent leveling out in fund size, or at least a deceleration in the rate of increase between vintages, is not confined to CDH. Hony Capital closed its latest fund, which includes US dollar and renminbi tranches, at approximately $2.7 billion in 2016, having raised a $2.36 billion US dollar fund and a $1.6 billion renminbi vehicle in 2012.

Other China-focused managers continue to see increases, but they have yet to match CDH and Hony in scale. For example, FountainVest Partners raised $2.1 billion for its third vehicle, up from $1.35 billion last time around, while Boyu Capital went from $1.5 billion on Fund II to $2 billion on Fund III.

CITIC Capital raised $1.57 billion for the US dollar portion of its latest fund earlier this year and expects to have $2 billion in total once the renminbi portion has closed. Two other China GPs are currently in the market: Primavera is reportedly targeting $2.8 billion, up from $1.93 billion for its second fund, while CITIC Private Equity is seeking around $2 billion for its latest vehicle.

One of the arguments for larger China funds is the greater availability of control transactions, particularly privatizations and corporate divestments. CDH teamed up with Hillhouse Capital earlier this year on a $6.8 billion privatization of Belle International, while CITIC Capital recently worked with Baring Private Equity Asia on the acquisition of Wall Street English from Pearson.

“Our main fund is $2.5 billion, so the team looks for $100 million-plus deals and we have a smaller fund for $30-50 million growth deals,” Stuart Schonberger, a managing director at CDH, told AVCJ last month. “The move towards control transactions means larger ticket sizes. In a slower growth environment, you want to have control and leverage, with a lot more predictability in terms of returns. But to do these large transactions with pure Chinese companies, relationships with management teams are critical.”

CDH’s mid-market fund closed in January at the hard cap of $800 million. It comprises two separate pools of capital: approximately $300 million in US dollars and $500 million in renminbi. PAG Asia Capital is also raising a China growth fund, while Nexus Point – a PE firm launched by former MBK Partners executive Kuo-Chan Kung – wants $750 million for a mid-market China buyout strategy.

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• Topics
• Greater China
• Buyout
• Growth
• Fundraising
• China
• GPs
• CDH Investments Management