Fund focus: Cathay taps strategic expertise in energy

When Cathay Capital Private Equity launched its China car technology fund in 2017 – the firm’s first renminbi-denominated vehicle – French auto supplier Valeo came in as an anchor investor. It inspired other French enterprises to consider similar endeavors.

Energy giant Total approached Cathay and agreed to support a China smart energy vehicle through its VC unit, Total Carbon Neutrality Ventures. Hubei High Technology Investment Guiding Fund Management, a Chinese provincial government financial platform, came in as the other anchor investor. Each group contributed RMB300 million ($42 million).

Hitting the road in 2018 with a target of RMB1.5 billion, the fund has now received commitments of RMB820 million. ALIAD, the VC arm of industrial gases producer Air Liquide Group – making its first foray into China – and container shipping player CMA CGM Group are among the other French participants. They are present to provide more than just capital.

“We’re looking to bring in power industry player for the final closing. We want LPs that can help our companies, rather than pure financial investors,” says Li Zhang, a partner at Cathay who leads the smart energy strategy. “For example, Air Liquide is a leader in the hydrogen fuel cell space, which adds a valuable piece to our knowledge map. In turn, we can help them find innovative local start-ups and entrepreneurs.”

The fund - Zhang believes it is the first of its kind in China - will write checks of RMB30-100 million for companies in three fields: industrial energy conservation relating to new production processes and methods; new energy solutions; and environmental protection and sustainable development. The first investee is Allsense Technology, an internet of things (IoT) service provider specializing in the digitization of thermal power. The company says its data collection tools can save fuel and reduce wastage by making real-time calculations to optimize production processes.

According to Zhang, her team has access to numerous exclusive investment opportunities. Within new energy solutions, she is particularly excited about photovoltaics. The typical silicon-based raw materials used to make solar cells consume a lot of energy during fabrication. In 2010, perovskite emerged as a cost-effective alternative: its photoelectric conversion rate is significantly higher and the fabrication process happens at a lower temperature and pressure.

“If it can be applied on a large scale, it's possible that the costs can match hydropower,” says Zhang. “In my view, it can reach mass production in three to five years.”

Cathay has identified a Chinese developer of perovskite-based solar cells and wants to help it expand overseas. The country is still benefiting from a generation of generous government subsidies for the solar industry. These enabled the construction of entire upstream and downstream industrial supply chains, which have brought down costs and made China globally competitive.

Nevertheless, Zhang accepts that new energy solutions are risky. While Cathay can leverage its local knowledge and resources in deal sourcing, it will work closely with LPs on establishing whether a technology has long-term viability. "They have years of accumulated experience, taking in both successes and failures,” she says. “They know what to avoid and what to go for, and they have built up large teams of in-house scientists."

Zhang joined Cathay last year from SBCVC where she led coverage of automotive sector investments. She is supported by a team comprising scientists with expertise in fields ranging from materials to chemicals, as well as financial professionals. But the most important aspect is getting the dirty work done. “This morning, I was in a garbage transfer station,” Zhang adds. “We rarely stay in the office. We visit factories and labs to understand processes.”

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• Topics
• Greater China
• Fundraising
• Industrials
• Growth
• Technology
• Renminbi fund
• China
• Cathay Capital Private Equity
• energy