China's Firstred targets $500m US dollar fund
Firstred Capital, a Chinese private equity firm established by M&A veteran Xiaodan Liu, is looking to raise approximately $500 million for its debut US dollar-denominated fund.
The firm closed its first renminbi fund at RMB6.8 billion ($1 billion) earlier this month and announced plans for a US dollar vehicle at the same time. The two funds were supposed to launch in tandem, but travel restrictions tied to the coronavirus pandemic led to delays. The process is now expected to start in April.
"Hopefully, the vaccine will be available by then and we can freely enter Hong Kong. For a first-time-fund, it makes a big difference having face-to-face meetings with LPs rather than online meetings,” said Liu (pictured).
Liu established Firstred in 2019, having previously served as CEO and chairwoman of Huatai United Securities. She has more than 20 years of experience in investment banking in China. During Liu's tenure, Huatai United topped the domestic M&A advisory league table for five years in a row as well as expanding internationally.
She jokes that she has a powerful “friends and family circle" comprising the founders and top executives of numerous leading Chinese companies. These individuals supported the renminbi fund - either directly or through family offices - and they are expected to participate in the US dollar vehicle as well.
"Given the US dollar fund is half the size of the renminbi fund, I think we can comfortably raise it from existing investors. However, I hope to attract some offshore institutional investors,” said Liu.
One of the reasons for starting with a vehicle of moderate size is a desire to deploy the capital and deliver returns in a relatively short timeframe. “My background is China, so it will take time for me to prove myself to foreign institutional investors. I want to show them strong results before we move on to launch much larger funds,” Liu explained.
The renminbi and US dollar vehicles will be managed by the same team under the same strategy. Deals will be split between the two on a pro rata basis, with the exception of transactions that are only open to one currency. Foreign participation is restricted in certain industries, while companies targeting domestic IPOs might only want renminbi. On the other hand, US dollars are preferred by Chinese entrepreneurs with offshore structures.
“I’ve encountered several deals recently where the target company has a VIE [variable interest entity] structure and the investment is priced in dollars. Having a US dollar fund will allow us to cover our target space more holistically," Liu added.
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