Meet the growth firm behind ‘London’s first Chinese PE trust’

Welkin China Private Equity Limited will seek $300m to invest in a mix of secondaries, co-investments and growth equity opportunities.

Ivan Chu Jonathan Lau Welkin China Private Equity
(L-R) Ivan Chu, chairman of WCPE, and Jonathan Lau, managing director of WCM

A Hong Kong-based growth equity firm is planning to launch what it believes would be the London Stock Exchange’s first investment trust focused solely on Chinese private equity.

Welkin Capital Management will seek $300 million for Welkin China Private Equity Limited on the premium segment of the LSE’s main market, according to a statement. WCPE will be seeded by $15 million of interests in Welkin’s existing Fund II – a $160 million 2017-vintage – and interests in 10 of its underlying portfolio companies for another $15 million.

For the first 12 to 18 months after floating, the trust will deploy the majority of its capital into tactical opportunities, which include LP interests, direct secondaries and co-investments, the statement said. WCPE will target an annualised NAV total return of at least 15 percent.

The trust will be available to accredited investors and above.

WCM currently manages about $500 million, including co-investment capital, from a mix of domestic, European and Australasian institutional investors. Private Equity International caught up with Ivan Chu, chairman of WCPE, and Jonathan Lau, managing director of WCM, to discuss the rationale behind its latest strategy.

It’s an interesting time to bring a Chinese investment opportunity to international public markets. Why now?

Ivan Chu: We take a medium- to long-term view of China, which is that despite the geopolitics, despite covid, we are actually looking at the fundamentals and seeing many good companies which have a lot of potential and, at the moment, considerable discounts. Hence our intent to float and to connect the world’s capital to the London market and funnel that into China.

The listing of WCPE is really an optimistic story. When you look around the world and the valuation reset in the public market, from our perspective, this is the time to do it – when we spot great opportunities in the market because we are on the ground.

Jonathan Lau: What better time to start than now? While it’s not the easiest time to raise a fund, it’s probably the best time for an investor. When we study history, the greatest companies are always formed when the world’s changing; business models change, the world changes, and the ones that adapt and evolve – those are the winners.

China is a huge private equity market – $1.8 trillion – and the returns have been phenomenal, yet somehow only a few people get access to it, like endowments, incredibly large family offices, pension funds and insurance companies. And so… if we can create a product where a fund gives investors access to this, I think that would be terrific.

Why London?

JL: You look at the London Stock Exchange with its 200-year stock market history and 450 investment trusts trading daily, but somehow there isn’t one for Chinese private equity.

You have all of these dedicated investors who manage money for pension funds [and] charities with an incredibly long-term mindset. The fund managers that we’ve spoken to really like liquid alternatives because they say, look, my duration is really long, and when assets are on their cheaper end, I should lean into it instead of when it’s expensive.

We’re also bringing a number of investors from Hong Kong, China [and] Singapore to this IPO, so it’s not just purely a UK investor base. There will be a number of professional investors and institutional investors in this part of the region as well.

What will the tactical portion of this trust look like?

JL: The goal is to create a fund that’s highly diversified – multi-vintage, multi-strategy, multi-manager and across two strategies: growth, which will be from Welkin’s flagship growth strategies, and then the rest is tactical investment. We’re supposed to deploy this capital in the next 12 to 18 months, and our near-term focus will be skewed towards the tactical side.

Broadly, we want to create a portfolio where on a look-through basis, you have access to hundreds of companies. There’s actually no better time than now to build our portfolio, when there [are] a number of international or domestic investors looking to rebalance their portfolios. This may also be a good time to buy these positions with attractive pricing.

How will this strategy interact with your private funds business?

JL: We’re looking to launch Fund III within the next year… Our flagship Welkin growth funds for institutional investors will continue. And WCPE really is a way to give regular customers access to this asset class – if you look at groups like Hg Capital, one of the most successful European tech funds, the largest LP in every single fund is actually their listed company. Eventually we’ll be investing into fund three, four, five. So, this is a tried and tested model.

Our goal in the future would be to do a couple of placements, and we would like to, depending on how the market environment is, grow WCPE to a larger size, which will give our shareholders more liquidity. WCPE’s fund construction is a key differentiator.

Why secondaries is so important, and why we want multiple maturities, is because when the cash comes back, we have the opportunity to reinvest that capital into new opportunities. Creating that type of portfolio where money is constantly moving gives us options.