CDH raises $1.1b for China's largest mezzanine fund

The private equity firm closed its fourth mezzanine fund in 2016 at RMB3.5 billion, exceeding the target of RMB2 billion. CDH launched the strategy in 2011 to expand its investment spectrum within alternatives. The first two funds in the series have already been fully exited, generating IRRs of 15.1% and 11.5%, respectively.

For Fund V, 14 insurance companies have contributed 60% of the corpus. All five mezzanine funds have raised a combined RMB8.5 billion from 27 domestic insurers. Their participation has grown since 2014 when the insurance regulator started promoting the strategy. Mezzanine funds typically deliver stable cash distributions during the investment period plus floating back-end income, which is seen as a good fit for insurers.

Other LPs in Fund V include banks, investment trusts, fund-of-funds, corporate-backed funds, pension funds, and government guidance funds. ”We’ve seen more and more investors paying attention to mezzanine funds, we firmly believe in its growth potential," said Ning Hu, founding partner of CDH's mezzanine strategy, in a statement. The firm added that mezzanine and credit account for 25-50% of assets managed by the likes of The Blackstone Group, KKR, and The Carlyle Group. For Chinese firms, the figure is below 10%.

The new fund will focus on four main areas: real estate, corporate business, special opportunities, and M&A. CDH has invested in 92 projects across these four areas to date, deploying RMB22.7 billion.

In addition, the mezzanine team will pay particular attention to three verticals. First, new infrastructure, with high-quality assets in first-tier cities expected to generate good cash returns. Second, urban renewal, especially the renovation of existing properties in the Greater Bay Area. CDH has already invested in renewal project in Shenzhen covering more than 2.5 million square meters. Third, non-performing assets, which CDH has always regarded as a counter-cyclical opportunity suitable for hedging downside risk.

Separately, the private equity offered some insights into how it has been contributing to the fight against the COVID-19 outbreak. CDH has donated more than RMB3 million in supplies, including over 30,000 facemasks and disposable surgical gowns, to hospitals in Wuhan, Beijing, Suzhou, Guangxi and other parts of China. 

In addition, 25 portfolio companies provided over RMB260 million in funding and supplies to Wuhan and other affected areas. Within the logistics and warehousing space, the likes of JD Logistics, Yimidida, Lecar and Telaidian were particularly active, delivering food and other supplies to support frontline efforts.

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• Topics
• Greater China
• Fundraising
• Mezzanine
• China
• CDH Investments Management