US dollars won’t buy everything in China, which is why FountainVest Partners has plans to raise an RMB fund – perhaps this year, according to Frank Tang, CEO and managing partner. The investment strategy will be the same as the firm’s US dollar funds, but the fund size (as yet undetermined) will be smaller.
An RMB fund brings a China country manager the flexibility to move quickly on deals (peers like Hony Capital and CDH Investments already manage domestic funds). Unlike US dollar transactions, RMB investments do not require regulatory approval and no currency conversion is necessary.
“As such, there are certain advantages of an RMB fund,” Tang says. China’s entrepreneurs have different needs and some may prefer RMB, he adds.
Tang is studying the possibility of raising a fund through China’s new financial hub in Qianhai, near Shenzhen, which is expected to liberalise foreign currency regulations for approved investors.
He admits that managing dual currency funds holds potential for conflict, especially since the RMB fund will be aimed at the same industries and sector themes as the US dollar fund and managed by largely the same team. “Even if the firm uses its best effort to allocate, then it becomes a little subjective.”
To minimise conflicts, FountainVest will make investment decisions based on deal size. Above a predetermined size, capital is drawn from the USD fund and below it, the RMB fund. “That removes the subjectivity,” Tang says.