The new breed of Chinese LP

China’s wealth management platforms are among the country’s biggest investors in private equity, and they have their sights set on Silicon Valley.

China’s soaring wealth is spawning a whole new class of limited partners with an appetite for private equity. Wealth managers such as CreditEase Wealth Management and Noah Holdings have grown rapidly as China surges up the global super-rich rankings.

By 2020, China’s wealthy are expected to have up to 200 trillion yuan ($29 trillion; €27 trillion) to invest. That would make it the biggest high-net-worth market in the world, with 3.88 million high-net-worth individuals, up from 2.07 million in 2015.

This is reflected in the rise of Credit-Ease, which started out in 2006 as a peer-to-peer lender offering loans to millions of underserved Chinese including micro-entrepreneurs, salaried workers and students.

Five years later, CreditEase expanded to wealth management, this time catering to the needs of China’s wealthier classes. It manages over 10 billion yuan of assets for Chinese high-net-worth individuals. Investments span a range of fast-growing industries, from telecommunications to healthcare, consumer discretionary, clean tech and media in Asia, North America and Europe.

Its funds include a fintech investment fund targeting $1 billion and a $150 million global real estate fund. It also has a 2016-vintage Global Private Equity Fund that aims to raise $200 million. The fund caught the attention of the wider markets when reports came out that CreditEase partnered with private equity giants KKR and Blackstone for the fund.

Another big investor in private equity is $50 billion Noah Holdings, which boasts over 135,000 clients and 1,169 relationship managers across 71 cities in China. As of December 2016, private equity accounted for 34.2 percent of its overall portfolio.

Noah has its own alternatives arm called Gopher Asset Management, managing about $17 billion across private equity, real estate, secondary market and other investments in both yuan and foreign currencies. The firm has backed well-established names in venture capital, including Sequoia Capital, Qiming Venture Partners and Horizon Capital.

GLOBALISATION PUSH

Both CreditEase and Gopher have an appetite for overseas investments. In recent years, CreditEase has expanded into Hong Kong, Singapore, New York and Tel Aviv. Gopher last year became the first Chinese wealth manager to open a Silicon Valley office as it looks to increase its US venture investments.

“What we are clearly recommending to our high-net-worth clients in China is more global allocation,” says Noah’s chief investment officer PV Wang. “And US venture capital is an area we find very promising given all the technological disruption and push for creativity happening in that market.”

CreditEase is not far behind. The firm partnered with US-based Wellington Management to invest in pre-IPO stage companies and has backed US fintech companies such as Trumid and WeConvene. According to Seungha Ku, partner for offshore private equity at CreditEase, the firm is evaluating opportunities in the venture capital space, largely in the US and China and more selectively in Europe.

“While we remain cautious about rising valuations in growth/late-stage deals, we target new VC investments with proven business models and clear monetisation strategies,” Ku says.