Goldman Gao Hua head to raise domestic Chinese fund(3)

Gao Hua chief Fang Fenglei plans to raise a domestic fund that will allow him to sidestep Chinese investment regulations that plague foreign firms.

Fang Fenglei, head of Beijing-based Goldman Sachs Gao Hua Securities, is reportedly planning to raise one of China’s first domestic private equity funds.

Fang is currently assaying government support for his planned Y6 billion ($790 million, €573 million) buyout fund. Last September, Beijing announced that foreign investors would have to obtain official approval before acquiring controlling stakes in key industries, a barrier domestic funds do not face. The new regulation was just one of several laws enacted to encourage private equity firms to make investments through local, yuan-denominated funds and to list their stakes on Chinese exchanges when they exit their investments.  

Foreign private equity funds have long dominated the Chinese market, which Beijing is trying to change by encouraging the growth of domestic private equity of late. In addition to September’s new regulations, last year the government began to allow foreigners to make investments in A-shares of listed companies. In June of this year the government also drafted a law that clarified the legal framework and tax treatment of Chinese partnerships, simplifying the development of domestic funds.

Last December the Bohai Industry Investment Fund became the first wholly domestic Chinese private equity fund. The fund has already held its first close on Y6 billion, ultimately targeting Y20 billion. Several other firms are reportedly planning to raise yuan-denominated funds in the near future, including Sequoia Capital and ID TechVenture, according to the Beijing Review.

The Chinese government has also been a direct participant in the private equity market, as it seeks investment opportunities for its massive foreign currency reservces. Beijing invested $3 billion in The Blackstone Group’s initial public offering last month via a private placement.

Fang has no intention of stepping down from his post at Gao Hua, Bloomberg reported. Set up as a joint venture with Goldman Sachs in 2004, Gao Hua underwrites domestic shares, yuan-denominated corporate and convertible bonds and offers financial advisory services.

Goldman owns 33 percent of the company.