TPG to raise $736m for China

TPG will join the ranks of other Western firms raising RMB-denominated funds, including Carlyle, KKR and Blackstone.

Global private equity firm TPG Capital is to launch its first RMB-denominated fund in Shanghai with a RMB5 billion (€579.7 million; $735.5 million) target, a senior industry source in Shanghai has confirmed.

The fund will focus on making investments to support the growth of mid to large-sized Chinese companies, particularly in financial services, consumer, retail, healthcare and other “modern services” industries.

“TPG is one of the largest private equity firms in the world with a more than 15-year track record of successful investments in China,” Lin Xu, standing member of the Shanghai Party Committee, said in a statement.

Given that US dollar-denominated funds in China are still subject to restrictions on investment and unpredictable approval processes on deals, RMB funds have become increasingly popular with both domestic and foreign fund managers wishing to access the Chinese market.

In January, the Carlyle Group signed a memorandum of understanding with Beijing Municipal Bureau of Financial Work to set up the Carlyle Beijing RMB fund targeting RMB5 billion. The fund held its first close on RMB2.4 billion in July.

In November 2009, under the pilot programme that allows foreign private equity and venture capital firms to establish wholly-owned Chinese entities in Shanghai’s Pudong New Area, the Blackstone Group set up the RMB5 billion-targeted Blackstone Zhonghua Development Investment Fund, which as of July had collected half its target.

Kohlberg Kravis Roberts, meanwhile, is thought to be targeting up to $1 billion for its first RMB fund.

For TPG, an RMB fundraise would follow some signficant recent success in Asia; in May, the firm reportedly reaped a 16x return multiple on its original investment in Shenzhen Development Bank by way of a partial exit to China’s Ping An Insurance.

TPG's “China Partners I” fund will, in collaboration with the Shanghai government, invest in mid- to large-sized Chinese firms with a focus on the sectors of financial services, consumer, retail and healthcare, Reuters reported.

The fund is expected to start fundraising in the next several months, the firm said.

TPG in 2008 raised approximately $4.2 billion for its fifth Asia-focused fund, however it later gave LPs the option to reduce their original commitment by up to 10 percent given the financial crisis' impact on LP liquidity levels and over-exposure to the asset class.

The conflicts of interest a GP may need to navigate between LPs in its dollar-denominated Asian or global funds and the LPs invested in RMB funds is an issue covered in more depth the September issue of Private Equity International magazine.