PE topples advisory as China Renaissance's key business

China Renaissance generated RMB2.73 billion ($417 million) in revenue in 2020, up from RMB1.62 billion a year earlier. Investment management accounted for 50%, compared to 37% in 2019, while the investment banking share fell from 43% to 37%. As recently as 2015 – before brokerage and wealth management services were introduced – the investment banking-investment management split was 88-12. Net profit rose 320.5% year-on-year, surpassing RMB1 billion for the first time.

Assets under management (AUM) increased from RMB34.2 billion to RMB57.4 billion, of which more than one-third was fee-earning. China Renaissance remains primarily a manager of renminbi-denominated capital, with a 77-23 local currency-US dollar split. Growth capital funds are responsible for 59% of assets, with 11% in healthcare, and 30% in project vehicles.

Fundraising activity in the past 12 months includes final closes of $600 million on a third US dollar fund – which had raised the bulk of its capital by the end of 2019 – and RMB1.4 billion for a second renminbi healthcare fund. Further AUM expansion is expected in 2021 and 2022 as the latest renminbi and US dollar growth funds, both in their fourth iterations, come to market. The targets are RMB10 billion and $1 billion, respectively.

In 2019, China Renaissance’s PE funds generated carried interest for the first time, realizing RMB42 million in gross terms. This fell to RMB21.3 million in 2020, but gross unrealized carried interest shot up from RMB461 million to RMB3.34 billion. Two-thirds of this is attributable to LPs and management team members.

Across all its funds, the firm has realized RMB5.29 billion to date and is sitting on unrealized value – more than half of it in listed companies – of RMB52.1 billion. The average IRR and gross multiple were 45% and 2.6x.

The increase in revenue from the investment management business was driven by net investment gains, which rose from RMB127.3 million to RMB933.1 million. Management fee income shrank. Most of these gains came from China Renaissance’s RMB2.37 billion in balance sheet interests in funds. Two-thirds of this is in the firm’s own funds. It plans to increase these principal investments.

China Renaissance said in its annual results statement that strong performance in 2020 can largely be attributed to the firm’s “twin-engine business model” and the synergies derived from running investment banking and investment management businesses side-by-side.

“Our investment banking business gives us the advantage of hundreds of in-house bankers, supporting deal sourcing and exit solutions for our investment funds, as well as being the forefront of our client acquisition. Our investment management business serves as a more direct and significant way of participating in new economy value creation, with its research-driven investment strategy helping investment banking in terms of sector focus and client selection,” the firm said.

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• Topics
• Greater China
• GPs
• Performance
• Growth
• Technology
• Healthcare
• Renminbi fund
• China
• China Renaissance