China's Primavera targets $300m for credit fund

The credit strategy was established earlier this year with the recruitment of Jeffrey Lau (pictured) as a partner and CEO and CIO of credit investments, leading to the launch of a dedicated fund. AVCJ was informed of the target by a source close to the situation. Primavera declined to comment.

Lau comes from a hedge fund background, having previously worked for the likes of Ayres Capital Management, Shikumen Capital Management, and Och-Ziff Capital Management. At the latter, he oversaw special situations, structured credit, and equity investments in Greater China.

Speaking at the AVCJ Private Equity & Venture Forum, Lau said that Primavera’s entry into the credit space was a reaction to “compelling situations we see in the marketplace.” Pointing to the “perfect storm” formed by COVID-19, zero-COVID policies, and rising interest rates and inflation, he claimed to be seeing opportunities with returns 500-1,000 basis points higher than 12-18 months ago.

Addressing the question of whether China is investable, Lau noted it is difficult to achieve scale in Asia without a market that accounts for 40% of the region’s private capital. Moreover, Primavera isn’t necessarily accessing opportunities onshore and relying on mainland courts for enforcement.

“We see a lot of opportunities with China-related companies that are facing stress or distress. We can structure things offshore and do things in a commercial way that allows us to take control of assets without going through the courts,” he said.

“The fact is that we are coming into this market with fresh capital, we can look across geographies, and places like China are potentially interesting over the next five years simply because some of our peers are unable to focus on those opportunities.”

Given prevailing market conditions, Primavera looks at situations assuming worst-case scenarios. Lau noted that structures must be robust and predictable enough to negate enforcement risk, attachment points must be low enough in the capital structure to create a significant margin of safety, and Primavera is careful in selecting issuers and transaction partners.

“Given all those parameters, there is no shortage of very compelling private credit opportunities,” he said, adding that private credit in Asia is underpenetrated compared to Europe and the US.

Primavera, which is in the market with its fourth flagship US dollar-denominated fund seeking USD 4bn, invests in China and in global companies that have a China angle. It raised USD 3.4bn in the previous vintage. The firm has broadened its geographic footprint in recent years, adding offices in Silicon Valley and Singapore to its bases in Hong Kong and Beijing.

Primavera Venture Partners was established in 2020 to focus on earlier-stage investments in areas like artificial intelligence, healthcare, and climate. A debut US dollar fund closed on USD 250m earlier this year and a renminbi vehicle is currently being raised. Separately, in May, Primavera launched a carbon neutrality fund with a target of CNY 10bn (USD 1.5bn).

Primavera Capital Acquisition Corporation (PCAC), a special purpose acquisition company (SPAC) sponsored by an entity controlled by Primavera founder Fred Hu and described as an affiliate of the PE firm, raised USD 360m in 2021. In March, it announced a merger with Lanvin Group, a luxury fashion platform established by Fosun Group, at a valuation of USD 1.5bn.

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• Topics
• Greater China
• Credit/Special Situations
• Fundraising
• GPs
• China
• Asia
• private debt
• Primavera
• Fundraising