Win in the “Double Currency Fund” series of reports: “Turning Powder” US Dollar Fund: RMB GP Solving “Recruitment”

21st Century Business Herald Zhao Na Beijing Report

When the RMB fund management team raises the first US dollar fund, it needs to face many challenges, and some Chinese local head investment institutions have not been able to manage the large-scale US dollar fund.

Since 2018, the investment rhythm of RMB funds in the domestic market has slowed down noticeably, making the investment of US dollar funds more prominent.

The large-scale funding of the US dollar fund is related to the abundant capital reserve: from the perspective of the entire Asian market, the new fund of Gaochun Capital has raised US$10.6 billion to become the largest regional fund in Asia; from the perspective of China’s domestic market, innovation Investment institutions such as workshops, Chuangshi partner capital, and Morningside Capital completed the recruitment of the new US dollar fund in the first nine months of this year.

“From January to September this year, the fundraising and investment of the US dollar funds have shown a steady and rising trend.” According to the observation of Guo Libo, the president of the China Investment Research Institute, the US dollar M&A fund has become a highlight of the fundraising of the US dollar fund, indicating the US dollar. LP is optimistic about mergers and acquisitions opportunities for domestic companies.

In addition to the veteran dollar fund management team to raise funds in accordance with the established rhythm, there are also a group of people who have used the RMB fund investment management business to launch the first US dollar fund.

Chris Lerner, a partner at Eaton Partners who has been helping US institutional investors looking for China’s outstanding GP funds, and Asia Pacific leader Chris Lerner told reporters that in the past 18 months, the RMB fund management team has initiated and is preparing to launch a US dollar fund. More appear.

“Now the overall situation is not the climax of the fundraising of the US dollar fund, but the GP that hopes to raise the US dollar fund does have a new start-up status.” Ge Qi, the managing partner of Dow Alloys, told the 21st Century Business Herald.

Dollar fund LP investment strategy shift

From a global perspective, the types of US dollar LPs for equity investment funds include sovereign wealth funds, pension funds, endowment funds, university foundations, family offices, PE-FOF, etc. Regional preferences, returns appeals, and evaluation criteria for different types of fund investors. Not the same.

In the first three quarters of 2018, the US dollar fund ushered in a good exit window. The US dollar fund investment projects have been in Hong Kong and went to the US IPO, which has brought considerable returns to the US dollar fund LP.

According to the report of the Investment Research Institute, in the first three quarters of 2018, the number of Chinese companies listed on the Hong Kong capital market increased by 46.15% year-on-year, and the fundraising scale increased by 1.83 times. As of the end of the third quarter, the scale of IPOs in the US has exceeded the full year of 2017. It is expected that 2018 will create the highest level of Alibaba’s listing in the US in 2014.

In addition, the relatively active US capital market has brought sufficient capital reserves for institutional investors. The US dollar fund LP, which has a deep understanding of the Chinese market, will not only reduce the allocation of funds in China in the short term, but will have an increasing trend.

Ge Qi established Dow Alloy Ze in 2009 and has long been engaged in the PE parent fund investment business in the Chinese market. He said: “The current Chinese market has changed a lot. There are many challenges. It is the time to test the GP investment management ability, and it is also the time when the really good GP stands out. We are willing to have deep contact and cooperation with the GP team in the moment.”

A number of US dollar VC fund sources told reporters that the large dollar LPs among fund funders are narrowing the number of cooperative GPs in China, preferring to maintain a cooperative relationship with GP teams that have performed well and have cooperated many times.

National Wave analyzed this phenomenon, which is more because the investment strategy of the US dollar fund LP has evolved: “In the past 10 years, as LP has increased its allocation of VC/PE assets, it is more familiar with the VC/PE ecosystem, and many large LPs. Reduced the proportion of direct investment in GP funds through FoF investment sub-funds, and began to explore ways to reduce the number of cooperative GPs and deep cooperation with high-quality GPs in joint investment.”

“Not all institutional investors are doing this, but it is a common phenomenon. It is a very elegant way to reduce management expenses and reduce carry expenses. The challenge is how to balance the benefits and risks. Li Sirui introduced.

Some market participants believe that under the strict supervision of the market environment, the recruitment of RMB funds in many institutions is difficult to meet expectations, and it is also one of the driving factors for the institution to explore the possibility of establishing a US dollar fund at the current time.

More Chinese local fund managers and the US dollar fund LP, which focuses on the Chinese market, said that this is an inevitable choice for investment institutions to develop to a certain stage.

More RMB GP test water dollar fund

A new phenomenon that deserves attention in the near future is that a group of fund management teams that have been managing RMB funds earlier are conducting new dollar fundraising.

In September this year, Mai Xing Investment, which has a 14-year history of RMB fund investment, completed the first US dollar fund raising of US$200 million. Maixing focuses on long-term project investment in the large consumer sector. Past cases include Yuanwang Valley, Dajiang Innovation, Medical Care, Voice Holdings, and Lechun Yogurt.

“As a fund management agency, we need to maintain good relationships with LPs with long-term funding capabilities, including both RMB investors and US dollar funders. We also need to use US dollar funds to help us invest in more investment opportunities. For example, some projects that only accept US dollar investment.” Cui Wenli, managing partner of Maixing Investment, told the 21st Century Business Herald.

A number of people from China’s local PE and VC institutions confirmed to reporters that more RMB investment institutions are taking place in the market to raise the first US dollar fund, including some RMB funds established in 2014 and 2014. Management agency.

“This has a lot to do with the market changes this year. The renminbi fund-raising environment is cold and the fund’s passage through domestic listing exits has tightened, which has pushed the RMB fund management team to explore more possibilities for setting up a US dollar fund.” A person who is engaged in fundraising work at a local PE institution told reporters.

Driven by various policies such as de-leveraging and strengthening of risk control in the domestic financial industry, the liquidity of LP funds in the Chinese market has decreased, the overall return on investment of the industry has declined, and the difficulty of fundraising has further intensified.

In the view of many equity investment institution partners, PE FoF managers and market analysts interviewed by 21st Century Business Herald, the fundraising and exit environment of domestic RMB funds will affect the stage strategy of the organization, but the core driving force It is still possible to cover different investment stages, different investment areas, and realize the possibility of exit through more capital markets.

On the whole, compared with the short duration of RMB funds and LP’s lack of sustainable capital supply, the LP of US dollar funds is more mature LP, and its long-term asset allocation strategy is not as vulnerable to policy and market fluctuations as RMB fund LP. Direct impact.

In the Chinese market, the head offices of Sequoia Capital, CDH Investment, IDG Capital and other industries all manage the US dollar and RMB funds. The high-capital capital, source capital and pleasure capital established in the VC new fund tide have also been doubled. The configuration of the currency fund.

In the case of the aforementioned Ma Xing Investment to establish a US dollar fund, the fundraising work will be concentrated in the second half of 2017, and the internal discussion on managing the US dollar fund can be traced back to 2016.

“From managing only RMB funds to managing dual-currency funds at the same time, for the development of investment management companies, we can expand the scale of asset management, diversify the development of LP foundation, improve international professional capabilities and standardize the operation system. Excellent fund management team Under different market conditions and policy conditions, it is possible to start the US dollar fund business according to its own development situation,” Ge Qi said.

Raising the challenge of the first US dollar fund novice

The industry insights, project decision-making concepts, project valuation models, and core team cross-language communication capabilities of an investment institution all influence whether an institution can complete the expansion from RMB fund management institutions to dual-currency fund management institutions.

The direct result of these differences is that the fund management team needs to face multiple challenges when raising the first US dollar fund, so that the fundraising of some of China’s domestic head-end investment institutions has not been able to achieve it.

“The way to invest in RMB and invest in US dollars is the same, but the difference between doing RMB fund raising and making dollar fund raising is very big.” Cui Wenli told reporters that in addition to excellent past investment performance, USD LP also values ​​the fund. A detailed record of past investments, focusing on fund work standards and processes, and the social responsibility of the management team.

On the one hand, the investment team with outstanding performance in the Chinese market, their understanding of China and the insight in specific industries are the positive factors to attract the US dollar LP; on the other hand, if the team members have the investment and management of the US dollar fund Experience also needs to be adjusted in the fundraising process, investment strategy polishing, and LP communication methods.

Li Ruisi summarized the considerations of the US dollar fund LP for the GP fund into several aspects such as industry concentration, investment strategy and past performance.

“Although we can only see the records that have happened in the past, but these data also let us know that the fund management team understands the market and whether it is actively managed in investment management. These factors are factors that can affect the performance of future funds.” He says.

“The past investment performance of such teams is persuasive. There are still factors that need to be adjusted in the specific aspects of fundraising, investment, management and retreat. Therefore, it is very important to get support from colleagues or partners who have experienced experience in raising US dollar funds. “Ge Qi suggested.

In addition to the above-mentioned investment institutions’ layout of the US dollar fund management business for institutional development, some institutions that have focused on RMB investment have set up small-scale US dollar funds for project investment in overseas markets such as the United States.

The investment targets of such cross-border funds are mainly distributed in the medical and health fields represented by innovative medicines and precision medicine, and the frontier technology sectors represented by artificial intelligence and big data.

On October 10th, the US Treasury Department issued an interim regulation on the pilot project of the Foreign Investment Risk Review Modernization Act, which greatly expanded the CFIUS review authority and strengthened the national security review of minority equity investments.

“The impact of this bill on the overall equity investment industry is limited. After all, most of the US dollar funds located in China are mainly used for investment in China. More influence will occur in the investment and mergers and acquisitions of technology companies in the United States.” National Wave Analysis.

Talking about the impact of Sino-US trade friction on the investment decision of the US dollar fund LP in China, Li Sirui believes that the current trade friction can only affect the global institutional investors who have been hesitant to allocate funds in China. For those investors who are already familiar with the Chinese market, they still have high expectations for the return of the Chinese market.

(Editing Lin Kun)

Link to article