Communication key to a China fundraise - AVCJ Forum

Aside from the track record, team and strategy of individual GPs, institutional investors are preoccupied by headlines about China's slowing economy, opaque policy making, potential financial sector weaknesses and systemic corruption. But Shan Chen, portfolio manager for the Public Safety Personnel Retirement System of the State of Arizona (AZ PSPRS) stressed that the long-term view is still positive.

"Our long-term view is definitely positive and I think a lot of pension funds have a similar view. You will see a lot of LPs increase their allocations to emerging markets, including China," he said. "Our short term view is mixed at best. But if we focus too much on the short-term dynamic it is not good for us. We have to look at 3-10 years down the road."

Niklas Schelander, executive director for investor relations at CDH Investments, which closed its fifth US dollar-denominated fund earlier this year at $2.55 billion, noted that if a prospective LP is negative on the China macro story, it is near impossible to turn them around.

CDH's fund is approximately $1 billion larger than its predecessor and this meant reaching out to sovereign wealth funds and large pension funds that in some cases are still only coming round to the notion of backing a country manager rather than a pan-Asian GP. As a result, the fund-of-funds share of Fund V fell to 15% from 40-50% of Fund IV.

"What we did better this time was preparing internally and externally. Our IR was better, our PR was better," Schelander said.

Jixun Foo, managing partner at GGV Capital, reported a similar experience. The firm recently closed its fifth fund at $622 million after just a few months in the market, but the process stood in stark contrast to Fund IV, raised in 2011.

"We were pretty confident of getting existing LPs to re-up and some new ones on board and we thought we would get there in a relatively short period of time," he said. "But we had some fall-outs and part of that was in our communication with LPs. For a lot of LPs it is not just hearing your pitch and making a decision, it is a process of getting to know you."

Hurst Lin, general partner at DCM China, added that timing and track record are also crucial to a successful fundraise. DCM launched its sixth fund in early 2010 and found that a lot of LPs were still recalibrating in response to the global financial crisis and weren't ready to respond. At the same time, Fund V had yet to mature, prompting questions about the track record.

"People had some issues about putting money into China and they were looking for an excuse not to put money in," he said. "But by the time we got to Fund VII we had some huge home runs. People could see the track record and they wanted to get in."

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• Topics
• Fundraising
• LPs
• Greater China
• China
• LPs
• Fundraising
• GGV Capital
• CDH Investments Management
• DCM-Doll Capital Management