Warburg Pincus’s latest China fund: Three things to know

Documents from a US pension provide a glimpse under the bonnet of Warburg Pincus China-Southeast Asia II which is seeking $4.3bn.

Warburg Pincus is seeking $4.25 billion for its second China fund, more than double its predecessor.

Documents from the Minnesota State Board of Investment‘s investment advisory committee, obtained by Private Equity International, provide a glimpse beneath the bonnet of Warburg Pincus China-Southeast Asia II.

The documents – dated 13 May – recommended MSBI commit $50 million, or 20 percent of Fund II, whichever is less, plus an additional amount not to exceed one percent of the total commitment for closing charges.

Here are three things to know about the new fund:

Looking East

Fund II is Warburg’s first China vehicle to include South-East Asia in the name, reflecting an expanded mandate to invest in that region. The fund will remain a predominantly China vehicle, deploying less than 25 percent of aggregate fund commitments in South-East Asia.

Warburg has identified Vietnam, Singapore and Indonesia as core markets, completing five, three and two deals, respectively, in those countries. Target sectors include TMT, financial services and real estate.

Taking it slow

China-Southeast Asia II will have a six-year investment period and a 12-year fund life, with an additional two years of extension subject to approval by its advisory committee.

The 12-year life goes against the grain: almost 90 percent of private equity funds have an initial 10-year term, according to Proskauer’s Fundraising Terms and Trends Report in March. Only 4 percent set a 12-year term.

Sharing the load

Warburg Pincus raises geography- or strategy-specific vehicles to invest alongside its flagship mega-funds. The firm will invest China-Southeast Asia II alongside Warburg Pincus Global Growth – for which it is understood to have raised around $14.6 billion – in all China and South-East Asia deals, according to the documents.

Most investments in companies, business or projects with significant connections and exposure to the regions will be split equally between the two funds.

Finance-related investments will be split 40-40-20 between WPGG, China-Southeast Asia II and the $2.3 billion 2017-vintage Warburg Pincus Financial Sector Fund.

Warburg Pincus declined to comment.