Grocery tycoon launches China retail fund

China Telescope Investments was founded in Beijing last year and its strategy is rooted in Du's consumer sector experience. The Telescope Consumer Growth Fund I, which is co-managed by SAIF Partners and last week reached a first close of RMB300 million ($49 million), targets retail and chain stores across catering, grocery, healthcare, pet supplies, and education.

"China's consumer market has strong growth potential because it still lags behind developed markets," Xiang Zhao, investment director at Telescope Investments, told AVCJ. "We differentiate ourselves from other private equity firms as we have rich experience in running one of the leading supermarket chain stores in China, enabling us to add value to retail operators."

He sees opening chain stores as the most efficient model to scale up an enterprise, citing Starbucks as the model to follow.

Sha Du, Home World Group's founder and also Yucun Du's father, contributed about half of the new fund's corpus. Du Senior was ranked as China's 14th richest man by Forbes magazine in 2005. Other LPs include high net worth individuals from Beijing and Tianjin, as well as Shenzhen-listed real estate developer YangGuang, which is majority-owned by GIC Private.

The fund, which will make investments in the RMB10-50 million range, is likely to raise a second round of investment within two years. "We will evaluate our first stage investment strategy and market response to our fund," Zhao says.

Before establishing Telescope, Yucun Du and his team made four venture investments, including Zhuhai Jinxun Electronic Technology, a community agriculture project created by Tsinghua University, Beijing media producer Kaxinmahua and kindergarten chain operator Ledudu Education. The latter may end up in the fund because it falls within the investment remit.

Based in Tianjin, Home World ran more than 80 stores in 11 cities, mainly in China's northern regions. Du sold the Home Way unit to US-based home improvement retailer Home Depot in 2006. One year later, state-run conglomerate China Resources Group acquired Home World Group's hypermarket chain in order to capitalize on the firm's northern China exposure.

"When we put different consumer businesses in a basket, it could mitigate risk as well," Zhao adds. The approach is based on an understanding that, although China's economy is weakening - in relative terms - with consumer sentiment wavering, the falling tide will not ground all boats.

In pet food, for example, Zhao sees a defensive industry: people may choose to eat out less often based on perceptions of how far the household budget will stretch, but they are likely to continue to invest in the comfort of their pets.

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• Greater China
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• China
• Consumer