HarbourVest backs IDG renminbi fund restructuring

The transaction, worth $600 million, is backed by a consortium of secondary investors led by HarbourVest Partners. It enables IDG to make distributions to existing LPs – many of them government-controlled funds – from a fund nearing the end of its life, while getting additional time and money to extract value from the portfolio. Approximately 10 assets are involved. The transaction was first reported by Chinese media and sources have confirmed the details to AVCJ.

The identity of the renminbi fund has not been disclosed. AVCJ Research has records of one local currency vehicle of meaningful size raised by IDG in 2010 or earlier: Harmony Capital Fund I, which closed at RMB3.6 billion ($528 million).

There have been several renminbi-to-US dollar fund restructurings in recent years. NewQuest Capital Partners led a $390 million restructuring of a fund managed by Loyal Valley Capital in 2018 and TR Capital subsequently underwrote a similar deal worth $100 million for Kinzon Capital. Other transactions are said to have been cut under the radar. 

Extracting assets from a renminbi fund and placing them into a new US dollar vehicle typically involves a restructuring of the underlying assets. It might be necessary to establish variable interest entity (VIE) structures of joint ventures so that offshore investors can have access to the underlying companies. It can be a costly and time-consuming process.

In the case of IDG, no restructuring was required at the portfolio company level because the secondary investors utilized the QFLP program. This was established in 2011 to ease the movement of foreign capital into renminbi funds. Global GPs applied for quotas and launched funds in the hope that they would be treated as local entities, removing the bureaucracy that restricts offshore funds. However, regulators later said there would be no special treatment.

IDG has put the structure to a slightly different use, according to a source familiar with the situation. It established an onshore vehicle under QFLP that acquired the target assets from the existing renminbi fund. The HarbourVest consortium pooled its commitments into an offshore entity, which in turn serves as the sole LP in the new onshore vehicle.

HarbourVest has worked with IDG before, leading a $600 million deal in 2017 which saw the VC firm sell down LP positions in at least seven funds managed by affiliates in India and Vietnam as well as by the GP itself in China. These holdings were acquired as part of the purchase of International Data Group. Through that deal, IDG assumed ownership of IDG Ventures, a global network of VC funds taking in the US, China, India, Vietnam, and Korea.

Within China, IDG manages more than a dozen funds across US dollars and renminbi. Several dollar vehicles were raised in conjunction with Accel Partners. The firm closed its most recent solo venture capital fund in 2017. A filing indicates the target was $588 million. IDG returned to market with Fund VI in March, seeking $688 million.

The firm claims to have invested in more than 900 companies over 26 years in China, achieving around 190 exits. It pursues three strategies – venture capital, private equity, and M&A – across technology, media and telecom, consumer and entertainment, healthcare, and advanced manufacturing, cleantech and energy.

Lazard is said to have served as sole financial advisor to IDG on the latest transaction.

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• Topics
• Greater China
• Renminbi fund
• Venture
• Secondaries
• China
• HarbourVest Partners
• Secondaries
• IDG capital