PAG eyes up to $300m for China special sits sidecar

The vehicle will invest alongside the Pan-Asia manager's 2015-vintage Fund II.

Pan-Asia manager PAG is looking to raise up to $300 million for distressed debt opportunities in China, Private Equity International has learned.

PAG China Special Situations Fund is a sidecar vehicle to the firm’s existing PAG Asia Special Situations Fund II, which collected $1.4 billion in June 2015, according to a source familiar with the situation.

The sidecar vehicle is meant to extend opportunities for investors of PAG’s Special Situations Fund that are interested in greater exposure to China’s over $600 billion non-performing loans market. Currently, only a certain amount of SSII can be deployed to China assets due to existing allocations the firm has agreed upon with its LPs, the source explained.

Limited partners in PAG’s first special situations fund, which collected $991 million in 2011 and is fully invested, include the Arizona Public Safety Personnel Retirement System and Australia’s Future Fund.

PEI sister title Private Debt Investor first reported on PAG's China-focused special sits fund, according to PEI data.

PAG is among a growing list of managers that have recently increased exposure to China’s burgeoning NPL market. Distressed debt investor Oaktree Capital partnered with China Cinda Asset Management Corp in 2013 and private equity heavyweight KKR teamed up with China Orient Asset Management and China Orient Summit Capital last year to tap opportunities in this space. Guangzhou-based ShoreVest Capital Partners is also another player which began buying NPL portfolios in China in November 2016.

As of end June 2017, non-performing loans in China totalled 1.64 trillion yuan ($248 billion; €207 billion), up 56.3 billion yuan from the previous quarter, according to data released by the China Banking Regulatory Commission. Bad loans for the period accounted for 1.74 percent of all outstanding loans of all Chinese commercial banks. Meanwhile rural commercial banks faced the worst asset deterioration among all banks. Rural banks saw bad loans increase by 15 percent from the first quarter to reach 297.6 billion yuan, reflecting an NPL ratio of 2.8 percent, the regulator said

PAG manages $18 billion in capital across private equity, real estate, and absolute returns strategies.

PAG declined to comment on fundraising.