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Exclusive: Lunar to market $380m China fund

Derek Sulger’s fourth China-focused vehicle could raise up to $500m

Chinese private equity firm Lunar Capital is gearing up to launch its fourth offering in the country, which will target $380 million, people familiar with the matter revealed to Private Equity International. 

While the cover says $380 million, it is understood that the firm could raise up to $500 million for the vehicle, which would make it over twice the size of its predecessor fund, which raised $200 million in 2010. Fund III was almost 70 percent invested in March last year, according to PEI’s Research & Analytics division.

Lunar and MVision, the placement group helping to raise the vehicle, both declined to comment on fundraising.

It is unclear exactly when the PPM will be released, but the firm has been meeting with investors this month, one source confirmed.

Lunar’s previous funds, particularly Fund II and Fund III, have performed well, according to the firm. While some of China’s GPs have struggled to exit portfolio companies, Lunar has completed full or partial exits from 75 percent of its historical investments.

In a progress report released by Lunar at the end of Q3 this year, the firm said trade sales, IPOs and recapitalisations represented 55 percent, 30 percent and 15 percent of exits respectively, including the partial realisation from WH Group, the CDH Investments-backed pork producer, and the sales of minority interests in Little Star Brands and I Pinco Pallino.

“In all cases, we believe that our operational involvement has been a key driver of what we were able to accomplish. We have observed in our own portfolio that investments with the highest relative degrees of control have generally performed better and benefited from more exit options, with less risk. We remain convinced that operational value-add is our best way of driving investment performance,” the report said.

Lunar was launched in 1999 by founder Derek Sulger and adopts a highly operational approach to its investments in China, strengthening its capabilities ahead of the new fundraise. 

In March last year, the firm announced the addition of two members to the firm’s operations team: Vincent Sun as sector partner for high-end consumer products, and Simon Liu as sector partner for the beverage industry. Both are based in Shanghai. One month later, Eric Yiming, an executive with experience in consumer retail, joined the firm as a partner, PEI reported earlier.