CITIC's Goldstone targets $1.6bn for Chinese buyouts

The private equity subsidiary of CITIC Securities has already raised half of its RMB 10bn target.

China-based Goldstone Investment, the direct private equity investment subsidiary of CITIC Securities, has begun raising an RMB-denominated fund for mainland Chinese buyouts, targeting RMB 10 billion (€1.2 billion; $1.6 billion), according to two industry sources with direct knowledge of the matter. It is the first buyout fund to be raised by a wholly owned subsidiary of a domestic securities company in China.

CITIC Securities declined to comment on the fundraising.

The fund has so far raised RMB 3 billion, not including an initial RMB 2 billion commitment from CITIC Securities, according to industry sources. The firm is also understood to have already identified investments across multiple sectors – including banking, IT, energy and media – totalling RMB 9 billion.

The CITIC Group is the parent company of CITIC Securities. The parent has two other private equity affiliates: CITIC Private Equity Funds Management, a China-focused private equity firm established in 2008, in which CITIC Securities bought a 30 percent stake; and CITIC Capital Partners, part of CITIC Capital, an asset management firm founded in 2002 alongside China Investment Corporation and a subsidiary of Qatar's sovereign wealth fund. The latter group, which is not connected to CITIC Securities, invests in China, Japan and internationally. 

Goldstone Investment, meanwhile, was formed in 2007 as a wholly owned subsidiary of CITIC Securities to directly manage its private equity investments. Goldstone is currently invested in 19 companies, according to the firm.

All three of the CITIC-related groups engage in buyouts, a strategy relatively few firms have employed in China given the market's emphasis to date on minority stakes and growth capital. Since 2008, private equity firms have raised a total of $4.3 billion across 21 buyout funds, according to Chinese data provider Zero2IPO. That compares to more than $211 billion raised in the same period for early stage, growth and venture capital investments in China, according to PE Asia's data division.

“Historically, the number of buyout funds [in China] is small, but the market for them is large,” said Cindy Qu, an analyst at Z-Ben Advisors. Although the buyout market is mature elsewhere in the world, Qu said, in China it’s just starting up.

Qu estimates that 90 percent of China-based private equity funds have exited their portfolio companies via IPOs. Now that the Shanghai and Shenzhen stock exchanges are “almost saturated,” she told PE Asia, she expects that more companies will begin looking for alternative exits, like buyouts. A funds of funds source also felt the struggling IPO markets could lead to more buyout activity.

However, Headland Capital Partners chief executive Marcus Thompson said that an increase in buyouts would probably be a more long-term change in China. In more developed markets, as entrepreneurs get ready to retire, it is natural for them to sell the business in a buyout deal; however, Chinese entrepreneurs are much younger, he said, so the “retirement pressure” hasn't quite hit Chinese private equity yet.