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RMB vs. USD debate takes centre stage

Hony Capital's John Zhao, CITIC PE's Yibing Wu, FountainVest's Frank Tang and Morgan Creek's Jason Zhang debated whether RMB funds were crucial for China-focused managers at the PEI Asia Forum held in Hong Kong this week.

The view of bustling Victoria Harbour from Hong Kong’s Four Seasons’ Hotel provided a fitting backdrop to this year’s PEI Asia Forum 2011, where industry leaders converged for the sixth year in a row to discuss Asia’s rising star on the global private equity stage.

The rise of RMB-denominated funds in China was a theme raised repeatedly during the two-day event.

Hony Capital chief executive John Zhao said that China was integrating itself with the national community and that it was not “a choice” to have one type of fund without the other.

“To be a leading country manager you need to have a complete spectrum of products,” Zhao said, while noting that for now at least, “we have a firm view our USD fund will always bigger” than its RMB fund.

Fellow panellist Yibing Wu, head of CITIC PE, said in a sideline interview his firm's USD and RMB funds gave it a “balance of institutional LPs both from inside China and outside of China” and that it viewed the two pools as blended capital “that positions us perfectly both for our primary strategy, which [invests both fund types] inside China, but also for when our portfolio companies have ambition to grow internationally”.

Frank Tang, head of China-dedicated FountainVest Partners whose firm currently invests only from USD-denominated vehicles, said he did not feel disadvantaged compared to his peers who were raising funds in both denominations. He likened the difference between the two to that of “French food and Italian food”.

“Most businesses will have their own preference, and both [demand for RMB and USD funds] will be growing,” he said. “It’s not a survival issue, we continue to see demand for our capital.” Tang added, “It really doesn’t make a difference from an LP perspective.”

Zhao noted that a glut of fresh capital from both domestic RMB funds and overseas USD funds could mean valuations getting pushed up.

Meanwhile, Jason Zhang, a managing director at fund of funds Morgan Creek Capital Management Asia, had an analogy of his own, likening the rise of RMB funds to a new group of kids suddenly showing up on a playground. 

“The reality is that it’s inevitable: these people are coming anyway, you’ve got to deal with it,” Zhang said. “If you don’t embrace it, maybe you’ll get left behind.”

He said one benefit to having more RMB funds being raised was the involvement of more institutional investors in China's private equity industry.

“As more and more RMB investors come into play, institutions too come into play and the market gets more mature,” Zhang said, a sentiment his fellow speaker Zhao agreed with.