Carlyle partners with Fosun for JV, RMB fund

Both firms will jointly sponsor and manage an RMB fund for investments into high-growth PRC companies.  The new JV fund has already had $100 million injected by Carlyle and Fosun, and both firms plan to make immediate investments. Aside from the fund’s initial capital, both companies will look for co-investment opportunities with their existing funds.
Through partnership with a large local conglomerate, the fund will ostensibly have easier access to local investors, with immediate benefits for further fundraising activities. This global strategic alliance between Carlyle and Fosun as well as the JV RMB fund will be led by Wayne Tsou, Managing Director and Head of Carlyle Asia Growth Partners, who previously worked with Warburg Pincus. 

Fosun’s pedigree

The counterparty of this alliance, Fosun Group, was founded in 1994 by four university graduates from Fudan University, including Guo Guangchang, the current Chairman and CEO of Fosun, Liang Xinjun, Wang Qunbin and Fan Wei. Five years after its formation, Fosun’s founding members started selling and buying property, enabling the company to buy state-owned enterprises in China. As its strategies thrived, the group established Fosun International in 2004 and listed the company on the Hong Kong Stock Exchange. Fosun has invested in various industries that benefit from China’s rapid growth, including pharmaceuticals, property development, steel, mining, retail and services, with its total value of assets under management exceeding $10 billion. One of its subsidiaries, SinoPharm Holdings, the most recent IPO from Fosun’s past investments, recently delivered a claimed IRR in excess of 100%.
This is not the first time that Carlyle has partnered with a Chinese corporate giant in the mainland, where many companies have been seeking private equity or VC capital rather than taking the longer route of applying for funds from lenders. Prior to this alliance, the two firms had already made a joint investment in Guangdong Yashili Group Co., Ltd., one of China’s largest infant formula companies, in September last year.

Carlyle’s position

AVCJ asked Wayne Tsou about the significance of this JV, and he replied: “Partnering up with a large private company in China means that it is time for China to globalize, with corporates in general aspiring to be global firms when looking at the maturity of private companies,” adding that bringing together best practice from East and West would allow both parties to be more competitive globally.
The new JV will expect to raise a reasonable size fund without rushing it. However, Tsou said that the joint entity plans to make five investments from its initial $100 million. The fund is open to all sectors, but the JV will look at the growth rate, leadership, market share and possible potential of the company when determining which investments to make.
Mutual synergies of industry knowledge and investment strategies from both firms will further buttress the JV’s strong potential for building strong networks and deal sourcing, according to Carlyle. Furthermore, the partnership of two well-known brands will likely lure local LPs’ attention for further fundraising.

Funds and fundraising in the PRC

According to AVCJ Research’s latest figures, just over $5.4 billion of private equity and VC funds were raised for China in 2009, compared to over $14.4 billion – the highest total ever – during 2008.
“Competition has been increased with the hundreds of local private equity firms who raised funds last year,” Tsou said, adding that there is a lack of professional well-managed platforms that are properly institutionalized. This is a commonly-heard complaint from experienced private equity players in China lately.
One non-Chinese Asian fund manager told AVCJ that it was quite surprising how much RMB capital Chinese institutions could raise for their private equity funds. Another mainland private equity player remarked that there are many new LPs expecting to invest into private equity in China.
Meanwhile, there was not a single case of overlap during the past ten years between Carlyle and Fosun, because the China market is so big, said Tsou. Consequently, the JV could increase the numbers of deals there, he added.
It should be noticed that Fosun has strong support from the Shanghai government, which should help deal closing and other administrative issues. PRC institutions and other incomers generally require strong local government connections to thrive.
“When in Rome, do as the Romans do.” A fundamental key for laying a strong foundation in China is to follow their business rules and bed down into the local culture, while keeping foreign firms’ sophistication.
David M. Rubenstein, Carlyle Co-founder and Managing Director, said of the deal, “China is one of the best places in the world to invest. We expect to make investments that benefit high-growth companies and enhance the local private equity industry.”

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• Topics
• Funds
• Renminbi fund
• Fundraising
• Greater China
• David M. Rubenstein
• Wayne Tsou
• The Carlyle Group