Local heroes

Chinese venture capital is going local. Demonstrating their popularity with fund managers, renminbi (RMB)-denominated funds in 2008 raised RMB264 billion to invest in China – up 347 percent from the prior year's total.

Local currency-denominated funds have a number of attractions, including the ability to gain quicker approval for investments. As a result, they now constitute the majority of venture capital funds raised in China. In 2008, the number of RMB-denominated venture capital funds accounted for 63 percent of total venture capital funds raised, a 20 percent increase from 2007.

The number of venture capital funds in total has increased over the last year. There were 91 new venture capital funds raised in China in 2008, up 57 percent from 2007. Of these funds, 58 were denominated in the local currency and 33 were US dollar-denominated, according to a study by Chinese data provider EZCapital & HolyZone.

The rise in the number of RMB-denominated venture capital funds was primarily due to the Chinese government introducing new statutes and codes regulating the Chinese venture capital market, the study said. As an example, it cited the establishment of the Growth Enterprises Board, a trading board for start-up companies.

At an average size of RMB672 million ($98 million; €78 million) last year, RMB funds were approximately 10 times smaller than US dollar-denominated funds, which had an average size of RMB6.8 billion.

The largest RMB funds raised in 2008 included the RMB5 billion Overseas Chinese Investment Fund, the RMB4.7 billion Tianjin Binhai New Area Venture Capital Guiding Fund, and a RMB5 billion fund raised by Hony Capital, the Beijing-based private equity firm.

The first quarter of 2009 saw more RMB-denominated funds being raised as local governments helped set up venture capital funds. In January, the Beijing Zhongke Fangshan Venture Capital Fund, which is backed by the Beijing municipal government, reportedly raised RMB500 million. In the same month, China-focused private equity firm New Horizon Capital closed its first RMB-denominated fund on RMB1 billion.

KKR JOINT VENTURE WRITTEN DOWN
Australia's Seven Network, among the top television networks in Australia, has written down the value of its 47 percent stake in Seven Media Group (SMG), a joint venture with Kohlberg Kravis Roberts, from A$794 million (€404 million; $515 million) to zero. The joint venture was formed in 2006 with KKR investing approximately $735 million for a 50 percent stake.

DBS FUND HAS LISTINGS IN MIND
DBS Private Equity has set up DBS Private Equity Enterprise, a $100 million fund to invest in unlisted companies in China. Over the next two to three years, the fund will invest between $10 million to $20 million per deal, for minority stakes in mid-to-late stage Chinese companies. It aims eventually to list the companies on the domestic A-share market, according to a statement from the bank.

INDIAN FUND MORE THAN HALFWAY TO TARGET
Avigo Capital, which makes growth capital investments in India, has raised $150 million for the first close of Avigo SME Fund III. The fund is targeting commitments of $250 million and Achal Ghai, managing partner at Avigo, said the fund expected to close by the end of the second quarter this year.

SUMITOMO TAKES SLICE OF FUND OF FUNDS
Tokyo-based Sumitomo Mitsui Banking Corporation (SMBC) has bought a 20 percent stake for an undisclosed sum in Alternative Investment Capital (AI Capital), a Japanese private equity fund of funds manager. AI Capital will leverage SMBC's customer foundations and networks within Japan to source opportunities in private equity funds through its fund of funds vehicles and advisory services, the firm said.

TEMASEK LAUNCHES SECOND INDIA OFFICE
Temasek Holdings, which opened its first Indian office in Mumbai in 2004, is setting up a branch office in Chennai. The move to open an office in the south of the country represents “a strategic geographic diversification to focus on the large south Indian market”, Temasek said. Thus far, the Singapore sovereign fund has been active in the north and the west of the country.

ING FUND OF FUNDS HIT BY OVER-COMMITMENT
Australia-listed fund of funds ING Private Equity Access is the latest publicly traded fund of funds to suffer fallout from its over-commitment strategy. The vehicle, which booked an A$8 million ($5 million; €4 million) loss in the last half of 2008, said it has 109 percent exposure to private equity and, given a slowdown in realisations, doesn't expect to be able to fund future capital calls with incoming distributions as it has done in the past.

CITIC TEAMS UP FOR TWO NEW FUNDS
Hong Kong-based alternative investments manager CITIC Capital is to launch a buyout and a venture capital fund in partnership with Chinese institutions, according to a Reuters report. It was reported in August 2008 that NSSF and CITIC Group, the parent company of CITIC Capital, were likely to invest RMB1 billion ($146 million; €116 million) each in such a fund. The firm also intends to launch a venture capital fund with China Development Bank, which is transforming from a policy bank into a commercial lender.

NEW REPORTING GUIDELINES FOR INDIA
The India Venture Capital and Private Equity Association (IVCA) is in talks with around 80 members to implement reporting guidelines for private equity firms in India. This is the first time such an initiative has being undertaken, with the aim to provide standardised guidelines for the industry.

CHINESE DEAL: BIGGEST IN EMERGING MARKETSThe $2 billion buyout of energy group Honiton meant China accounted for the largest emerging markets private equity deal in 2008

Announcement Target Acquiror Target Target Deal Value
Date /Financial Sponsor Sector Nationality ($bn)
8-Jul-08 Honiton Energy Arcapita Bank; Tanti Group Utility & Energy China 2.0
Holdings (Majority%) of Companies
14-Feb-08 Migros Turk (50.83%) BC Partners; Turkven Private Equity; Retail Turkey 1.6
De Agostini Capital – DeA Capital
30-Mar-08 Euromedic International Merrill Lynch Global Private Equity; Ares Life Sciences; Hungary 1.6
Montagu Private Equity; Healthcare
21-Jan-08 Mando (72.4%) H&Q Asia Pacific; KCC; Halla Auto/Truck South Korea 1.2
Engineering & Construction;
Korea Development Bank – KDB
23-Jun-08 Norske Skog Korea Morgan Stanley Private Equity Asia; Forestry & Paper South Korea 0.8
Shinhan Private Equity

PFISTER IS DEUTSCHE POINTMAN IN ASIA
Global banking giant Deutsche Bank's private wealth management arm has appointed Peter Pfister as director of private equity investments for Asia Pacific. Pfister has moved from Zurich to Singapore to fill the newly created position. He spent more than three years at the private equity group in Zurich and relocated to Singapore in December 2008. He is the first member of the firm's private equity group to be based in Asia.

TWO PROMOTED AT SQUADRON
Asian fund of funds Squadron Capital has promoted Wen Tan and Boris Bong to become managing directors. Both were investment directors at the firm. Tan joined Squadron in 2004. Prior to that, he was an associate director with Ernst & Young's China transaction advisory services group and an investment banker with Lazard in London. Bong also joined the firm in 2004. He was previously with PPM Capital, where he worked for five years. At PPM, he was an associate director and worked on management buyout and fund of fund investments in Asia Pacific.

MACQUARIE AND WOORI TO LAUNCH $1BN FUND
Backed by the South Korean government, Australia's Macquarie Group and South Korea's Woori Bank have agreed to raise a $1 billion fund, including $300 million from foreign investors, to invest in South Korea's infrastructure and renewable energy sectors. Up to $300 million is expected to be contributed by Macquarie and Macquarie-led investors, while Woori Bank will commit $200 million, according to a statement from South Korea's Ministry of Knowledge. The unlisted fund will begin fundraising in the third quarter of this year.

DUTCH GP BACKS INDIAN BIOTECH FIRM
Rabo Equity Advisors, a subsidiary of Dutch bank Rabobank, has inves ted INR450 million ($9 million; €7 million) in Sri Biotech, an Indian agri-biotech company. The firm's maiden investment is for a significant minority position that will increase from “28 percent to 38 percent over the next two years through a structured mechanism”, according to a joint statement from Rabobank and Sri Biotech.

AUSTRALIAN GOVERNMENT LAUNCHES VC FUND
The Australian government has set up the Innovation Investment Follow-on Fund, an A$83 million ($57 million; €42 million) venture capital fund. The fund will commit capital to more than 20 fund managers, which have portfolio companies in the biotechnology, biomedical, information communication technology and clean energy sectors.

INDIAN EDUCATION FUND ON THE ROAD
Kaizen Global, a newly established private equity firm based in Mumbai, is targeting commitments of between $100 million and $150 million to make investments in India's education sector. The firm began fundraising in January and has garnered soft commitments of about $7 million, said Reema Shetty, a managing partner at Kaizen.