Capital Dynamics goes inside-out in China

"Other industry players may deploy different strategies such as ‘outside-in' to get into China," says Thomas Kubr, who recently stepped down as Capital Dynamics' CEO but remains executive chairman, focusing exclusively on client development and overall strategy. "A lot of people try to access China through Singapore or the US West Coast. That's similar to trying to access the US market through England. Yes, people may speak the same language but are they of the same culture?"

To Kubr, any Asia strategy needs to have China at its center. He has visited the country close to 40 times in the past six years in order to figure out the best way of achieving this, before settling on Diligence Capital.

Under the strategic partnership, the Chinese firm will stay operationally independent but its English name has changed to Capital Dynamics China. According to a source familiar with the situation, Diligence Capital appealed to the Swiss firm is because it is one of the few China players running both renminbi and US dollar-denominated investment vehicles at the same time. This eases Capital Dynamics' path towards fundraising in China, as well as avoiding the regulatory restrictions that apply to offshore investors.

"We have established a very tight cooperative arrangement and we definitely plan to offer our clients - whether Chinese or international - a fully integrated investment solution. It should be to the degree that people know there are two separate corporate entities, but with one product in the future," Kubr explains.

Capital Dynamics' other Asia bases are in Hong Kong and Tokyo, where it set up operations in 2007 and 2010, respectively.

The most commonly used means by which foreign fund managers set up renminbi platforms is through joint ventures with local funds. It improves the efficiency of due diligence but it can alignment with investors based in the West can create problems for portfolio companies. What might be best practice in the US is not necessarily best practice in China.

Backed by the 10-strong Diligence Capital team in Beijing, Capital Dynamics doesn't need to set up a separate management team to oversee its China business. This function has been entrusted to Diligence Capital's founder, Andy Ge, who has previously worked for the Legislative Affairs Office of China's State Council, where he helped draft laws covering finance, capital markets, investment and private equity.

"We have invested over $1 billion in China market so far," Kubr adds. "I expect this partnership could generate substantial dividends.".

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• Topics
• Greater China
• Fund-of-funds
• Fundraising
• Capital Dynamics
• China
• Fund-of-funds
• Fundraising