RMB funds: Beyond the hype

China was the primary influence. The region's largest private equity market saw deal value drop by more than one quarter to $21.8 billion, largely driven by a continued decline in growth capital activity as the pre-IPO market stagnated.

The fundraising situation was even more acute. China-focused funds attracted $23.4 billion for the year in full, down 51.3%, and just $6.7 billion in the final six months. Renminbi fundraising came to $19.9 billion, while US-dollar vehicles received commitments of $3.5 billion, a year-on-year fall of 35.7% and 79.6%, respectively. After reaching $15.7 billion in the first half of 2012, renminbi funds attracted $4.2 billion in the subsequent six months.

Yet the briefing still featured questions on spin-out managers and the nascent renminbi fundraising hub of Qianhai in Shenzhen. Are we to assume that one can't keep a good GP down?

Clearly the likes of Yawei Wang are playing a role. Known as one of China's top A-share stock pickers after a 14-year career as a manager with mutual fund provider China Asset Management (CAMC), Wang went solo late last year. The location of choice for his debut renminbi fund was Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone, China's latest mini-laboratory for financial innovation.

Qianhai promises a host of incentives for financial services operators, including corporate and personal tax breaks. For fund managers, there is also the option to raise capital for renminbi-denominated vehicles in Hong Kong. The initial PR exercise was rounded off with a few choice remarks from John Zhao, CEO of Hony Capital, who suggested that its company might raise its next local currency fund via Qianhai.

At stake is the $113 billion in renminbi deposits held in Hong Kong at the end of December, up tenfold on 2009. With mainland China's institutional investor base yet to emerge fully, the hope is that Hong Kong's more sophisticated investors can take the place of mainland high net worth individuals who have lost interest in the asset class. Hence the drop in renminbi fundraising might be remedied.

If this is indeed the presumption, then it is flawed. The fundraising spike seen in 2010 and 2011 was predicated on short-term lucrative exits derived from robust IPO market. In its absence, renminbi managers need to come up with a new investment thesis. Will Wang's be a string of PIPE deals? Who knows, perhaps this will snag a few Hong Kong investors but it's hardly a strategy that can be employed by all.

Another look at the fundraising data for 2012 offers a hint of the private equity market that China should aspire to become. The list of leading fund closes from the first half of the year is dominated by renminbi vehicles; they are understandably notable for their lesser representation in the subsequent six months.

Disregard the two substantial fundraises involving PAG and Bain Capital's Asia buyout vehicles, and the rankings exemplify specialization: three infrastructure funds, two energy funds and three distress-focused funds all feature.

It serves as a timely reminder that those most likely to draw favor from an increasingly picky global LP base are those that offer a strategy or skill set that can be obtained elsewhere. Perhaps investors that previously flung their money at any renminbi manager with a bucket to catch it will begin to think in the same way.

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• Topics
• Renminbi fund
• Fundraising
• Greater China
• Renminbi
• Fundraising
• China