Fund focus: Welkin finishes institutional upgrade

Justino Liang’s ancestors co-founded Hang Seng Bank and The Mira Group in Hong Kong, and David Chang’s family made household cleaning products for Shanghai White Cat and toothpaste for Darlie. Johnny Kong comes from a line of textile producers, while Jason Koo is scion of one of the largest family-owned businesses in Taiwan.

They were responsible for the investment activities of their respective family offices until joining forces in 2009. This led to the creation of Hong Kong-based PE firm Welkin Capital.

“Asian family offices typically lack the institutionalized decision-making processes and incentivization programs to succeed in direct investments. We chose to strike out on our own with the objective of establishing an institutionalized, independent asset management platform with a singular focus of growth investing in China,” says Kong, CEO and founding partner at Welkin.

In the early days, Welkin made investments from its balance sheet. However, having built an 11-strong investment team, the firm recently closed its second US dollar-denominated fund at the hard cap of $160 million. The GP commitment accounts for one quarter of the corpus, but the rest comes from a range of LPs including a sovereign wealth fund, a pension fund, several fund-of-funds, insurance companies, and family offices from the US, Europe, and Asia. Including co-investment capacity, the new fund could deploy up to $320 million.

Welkin typically invests in leading small and medium-sized enterprises (SMEs) in niche industries, sourcing deals through Chinese and global networks established by the four families.  “Over 60% of the deals we look at each year are through existing relationships within this network. We have found that this advantage often leads to preferential access and terms. Many of these investments would be under the radar of other groups,” says Kong.

The families’ networks and industry expertise are also used to support portfolio company growth, particularly for businesses that have limited resources but want to expand into new markets or recruit additional talent. Welkin backed five companies through its first fund. The new vehicle has so far invested in six Chinese companies, among them camellia oil specialty brand Guitaitai and logistics platform ALOG Technology. Check sizes are in the $40-90 million range. There have been six full or partial exits across both portfolios.

“Chinese entrepreneurs are increasingly sophisticated operators. When seeking investors, brand names are no longer the primary concern. The ability of these investors to add real, tangible value to their businesses is often more important to them. While many investors talk about value-add, very few can follow through. We have added significant value to each and every one of our portfolio companies. Often, that makes us preferred long-term partners in their businesses,” says Kong. 

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• Topics
• Greater China
• GPs
• Fundraising
• China
• Growth capital