CMIA Capital Partners has raised $100 million for its fourth private equity vehicle targeting $150 million, Chong Min Lee, co-founder of the firm, confirmed to Private Equity International. He said the firm made a $30 million first close late last year garnering commitments from both existing and new LPs and has made three investments so far.
CMIA’s new vehicle is targeting the agriculture and healthcare sectors in China, with a strong focus on agriculture and food. While Lee says there is “no doubt about the business opportunity or ability to make returns” in the agricultural sector, he says it can be a challenging market to invest in.
“The main difficulty is there is a lack of strong management teams,” he said. “From China’s opening in the 1980s and 1990s, from that period on the focus on development has always been on industrialisation – manufacturing and so on. In the agricultural sector there has been an underinvestment in corporate development.”
Moreover, the agricultural sector shares similarities with the forestry sector, where biological asset claims have proven difficult to verify. Investors have been made wary after the June 2011 case of Sino Forest, a Chinese forestry company that has been the subject of legal action because it allegedly overstated the size and value of its forestry assets.
Similarly, in Hong Kong, China Forestry was investigated for alleged auditing irregularities. The Carlyle Group, through its global growth fund, had invested around $40 million in the firm in 2008 and then a further sum of approximately $15 million the following year. At the time of the stock market suspension in January 2011, Carlyle was reported to hold a stake of around 11 percent.
[China's] focus on development has always been on industrialisation – manufacturing and so on. In the agricultural sector there has been an underinvestment in corporate development
Chong Ming Lee, co-founder, CMIA Capital Partners
Lee said due diligence is very important in all Chinese companies, however, not just agricultural businesses. “The issue of inflated accounts and assets is not peculiar to just the agricultural sector. Investing in China, because there is a big population you will have good, honest management teams and the other end of the [management spectrum]. You have to be very careful where you are treading.”
CMIA was founded in 2003 and currently has $380 million in assets under management, according to PEI’s Research & Analytics division.
The firm invests in both minority and majority stakes of growth businesses in China and from its fourth vehicle has acquired LVYA, an industrial cultivator of edible mushrooms, Lee said.
The firm also completed a $23 million privatisation of Singapore-listed agriculture machinery manufacturer China Farm Equipment alongside China Merchants Technology Holdings in February this year, PEI reported earlier.