Hu: RMB fund advantages are 'artificial'

Former Goldman China chairman Fred Hu has labelled the advantages offered by RMB-denominated funds as 'artificial and transitory'.

While the likes of The Blackstone Group, The Carlyle Group and even Goldman Sachs are all flocking to raise RMB-denominated funds, Fred Hu, former chairman of Greater China at Goldman who left the US bank to set up Primavera Capital Group, said some advantages RMB funds have are “purely artificial, and purely transitory”.

By way of explanation, he pointed to three characteristics he associates with USD-denominated funds: USD funds have a longer history in China’s private equity industry and therefore longer track record; they are mostly managed by more experienced and professional teams; and they have a global connectivity.

Hu said that although RMB funds now enjoy greater advantages in terms of deal execution, he held an “optimistic view” that China would eventually open up and USD funds will still have plenty of opportunity to source deals. He was speaking on a panel during the 10th China Private Equity Summit, organised by the Hong Kong Venture Capital and Private Equity Association.

In March, Chinese media suggested Hu had raised more than $2 billion for his firm’s maiden fund, which has a reported target of $10 billion.

RMB vs. USD fundraising was a main theme discussed during the conference; while more traditional USD fund managers are raising RMB funds, local GPs with only RMB funds under their belt are also planning for USD funds. “This is the right direction to go,” said Boris Bong, managing director at fund of funds manager Squadron Capital.

Examples of local managers raising USD funds include Shenzhen Fortune Venture Capital, which manages 10 RMB funds and a $66 million USD fund; Cowin Capital, which is “actively” looking at raising an USD fund after having closed its fifth fund on RMB2.5 billion; and Kaiwu Capital, which is targeting $200 million for an USD vehicle while it’s in the market for its maiden fund with a target of RMB1 billion.

As China's young private equity market lacks an abundance of institutional GPs, Conrad Yan, Hong Kong-based partner at placement agent Campbell Lutyens, said RMB GPs would learn international best practices as they raise USD funds. In addition, the alignment of interest between GPs and LPs would sustain more in the long run in an USD fund structure, he added.