China Everbright seeks USD after domestic fundraising crackdown

The state-owned conglomerate's private equity subsidiary will look to tap Chinese fund institutions and corporates, family offices and overseas markets including the UK and US.

China Everbright Limited, a Hong Kong-based private equity manager, plans to increase its US dollar assets under management after domestic regulation dampened RMB fundraising last year.

The asset manager – a subsidiary of state-owned conglomerate China Everbright Group – will raise the percentage of its foreign asset allocation and boost its dollar-denominated funds to maintain stable AUM growth this year, according to an annual results presentation in Hong Kong on Thursday.

“We definitely are looking into a bigger number of USD fundraisings,” chief financial officer Richard Tang told Private Equity International. The firm is strengthening its institutional client relationship department and is in talks with fundraising consultants and intermediaries.

The firm will look to first tap Chinese fund institutions and corporates, family offices centred around Hong Kong and Singapore, and overseas markets including the UK and US, Tang added.

CEL’s heightened appetite for dollars comes after China tightened rules on asset management firms in April last year to crack down on domestic shadow banking and overleveraging. Yuan-denominated vehicles fell to just 7 percent of new Chinese fundraises last year, according to Pitchbook’s Private Equity in China Report.

Chinese commercial banks face difficulties investing through trust companies and certain stipulations make it more difficult to raise PE and VC funds in mainland China, Tang added. “There are probably starting to be more well-structured and regulatory compliant ways of asset management and allocation from Chinese banks, so I would say we probably can be a bit more optimistic and positive in 2019.”

CEL manages around HK123.8 billion ($15.8 billion; €14.1 billion) of private markets capital across 32 primary market vehicles and four funds of funds, of which HK16.9 billion is in USD. It is seeking $550 million for its New Economy fund, which is backed by Investcorp and had collected $410 million as of 31 December. The fund targets Chinese companies focused on artificail intelligence and internet services.

It plans to launch a private equity fund focused on China’s Greater Bay Area.

CEL is also increasing its focus on cross-border inbound and outbound investments. The firm completed several notable deals overseas last year, acquiring Norway-based Boreal Holdings via its global infrastructure fund and helping an existing portfolio company, US manufacturer Burke Porter, expand into China by building a factory. The group’s real estate business EBA Investments made its first overseas investment into US asset manager Arrow RE in April last year.

The firm expects China’s economy to continue to trend down “in the foreseeable future”, according to a statement. It recognised an increasing likelihood of the US and China reaching phased agreements on the trade row and the Chinese economy stabilising this year.

CEL’s total AUM, including equities, mezzanine and fixed income, rose 11 percent to HK$143.5 billion last year, compared with 2017.