Fund focus: A window of opportunity

COVID-19 wasn’t a major factor in China Renaissance’s latest fundraise. The firm launched its third flagship US dollar-denominated vehicle in 2018 and had more than $560 million in commitments – plus a first close – by the end of last year.

Nevertheless, LPs did pepper the Huaxing Growth Capital team with questions ahead of the recent $600 million final close. They wanted to know about the impact of the pandemic on existing portfolio companies and the risks presented by souring US-China relations. For its part, the GP wanted to highlight the investment opportunities in a contracting market.

“Our research shows that the overall investment shrank 50% in China’s private equity market in the first half of the year, but our fundraising was not influenced,” says Lisa Yuan, head of the CIO’s office at China Renaissance.

Indeed, the firm’s investment pace rose fivefold in the first six months of 2020 compared to the previous year. It has backed the likes of HR software-as-a-service (SaaS) platform eRoad Software, fresh produce retailer Xingsheng Youxuan, gene sequencing device manufacturer MGI Tech, automotive electronic products supplier HiRain Technologies, and insurance technology specialist Insgeek.

“There are the moments when others fear and you can be brave,” Yuan adds. “We saw the low tide earlier in the year and most investors withdrew their hands. We invested more than usual because the competition for projects was less fierce.”

She acknowledges this is likely a fleeting opportunity given the amount of dry powder in the market. For China Renaissance, its key selling point to entrepreneurs is access to broader platform that started out as an M&A advisory shop but now encompasses capital markets, brokerage services, and wealth management as well.

The firm has accumulated approximately RMB40 billion in assets under since entering the investment management space in 2013. There are nine funds under Huaxing Growth Capital – three renminbi vehicles, three US dollar vehicles and three dedicated healthcare funds – and around 17 separate project funds. Most of the latter are for LP co-investment.

The third US dollar vehicle is substantially larger than its two predecessors, which closed at $63 million and $183 million, respectively, in 2013 and 2015. They relied on Chinese entrepreneurs for the bulk of commitments. In contrast, over half the capital in Fund III comes from sovereign wealth funds, commercial banks, fund-of-funds, and family offices across Europe, Asia, and the Middle East.

The larger fund means a higher minimum check size – now $15 million – with the upper limit unchanged at $50 million. It will result in a more concentrated portfolio but the sector themes that characterize China Renaissance’s investments cut across the different funds. Healthcare and deep technology, including advanced manufacturing, are priorities.

In this context, the firm believes having a single team managing its funds regardless of currency works to its benefit. “The corporates that we invest in will decide if they prefer renminbi or US dollars,” says Yuan.

As of June, China Renaissance's private equity funds had an average multiple of 2.5x and an IRR of 33%. The first two US dollar vehicles had generated 3.5x and 1.6x at the end of last year. In 2019, the firm also made carried interest distributions of RMB42 million ($6.2 million), the first performance fee payout since the PE program’s inception.

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• Topics
• Greater China
• Fundraising
• Growth
• GPs
• China
• China Renaissance