Fund focus: Hosen wins support for China food thesis

Having recently closed a $440 million fund, food and agriculture specialist Hosen Capital is a strong example of how a corporate-sponsored Chinese GP can evolve into a fully-fledged independent, gaining increased traction with international LPs in the process.

Hosen started out in the renminbi space in 2010, with local agribusiness conglomerate New Hope Group as an anchor investor in its RMB1 billion ($177 million) debut fund. Although the GP had autonomy over its investments, New Hope took 50% of the carried interest. In 2012, Hosen raised $128 million for a US dollar fund; the International Finance Corporation, Temasek Holdings and Mitsui & Co. are LPs. It fell short of the $180 million target because the intention was to invest in parallel with the renminbi vehicle, so the team decided to commence deployment rather than push on to a higher total.

By contrast, Fund III was oversubscribed within eight months, securing commitments from sovereign wealth funds, fund-of-funds and insurers across the globe. The institutional portion is 70%, with the rest coming from strategic investors such as online retailer JD.com as well as New Hope. While New Hope still gets a share of the carried interest, it is much less than before.

“We have industry LPs as well as institutional LPs because we made a great effort to cultivate the ecosystem around agribusiness. A variety of strategic investors are participating in the fund with a view to potential partnerships with our portfolio companies,” says Alex Zhang, co-founder and managing partner at Hosen.

Food safety and farm technology will be prominent themes in the new fund, leveraging the willingness of China’s emerging middle class to pay a premium for products that offer quality and reliability. Hosen is targeting growth and buyout investments that are either China-based or grounded in supplying consumers in China.

“Chinese food consumption market is three to four times bigger than the US in terms of value because of the population and the food prices in certain categories, such as protein,” says Zhang. “If you can identify emerging category leaders in the agricultural space you will end up with decent returns because there is enough room to build global leaders.”

The firm is now looking to raise a renminbi fund to complement the US dollar vehicle. Several domestic institutional investors, including government-backed fund-of-funds, has expressed an interest. However, there will be a cap on the amount of renminbi raised, keeping it “much smaller” than the US dollar pool.

“In a competitive situation, having a renminbi fund is important because you can move money quickly to lock in a deal,” Zhang says. “Alternatively, we might also find the equity check is relatively small for some growth-stage investments, so start off by providing a small amount of capital from the renminbi fund. As the company grows and raises larger rounds, we can invest through our US dollar fund as well.”

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• Topics
• Greater China
• Fundraising
• Growth
• Industrials
• GPs
• China
• Hosen Capital
• Agriculture