Warburg plans up to $8bn war chest for China

Warburg is eyeing up to $4bn to invest in China, along with capital commitments from its latest global buyout fund.

Warburg Pincus is gearing up for what would be the largest China-dedicated fund by a global manager.

Warburg is set to come back to market early next year, seeking up to $4 billion for Warburg China Fund II, which will invest alongside the firm’s flagship fund to give it up to $8 billion to invest in the country, a source with knowledge of the fundraise told Private Equity International.

Like the first China fund, Fund II will be a companion vehicle to its latest global fund Warburg Pincus Global Growth-E. Warburg is targeting $13.75 billion for the fund, according to a 16 November filing with the Securities and Exchange Commission.

Reuters first reported on the Warburg’s second China fund.

The firm will invest 50 percent from each fund when transacting in China and continue the same investment strategy – focusing on consumer, energy and industrials, healthcare, TMT, real estate and financial sectors.

The firm is also expecting to make more late-stage control deals from the fund, the source noted, especially as the environment for such transactions in China becomes more favourable for private equity investors.

Warburg declined to comment on fundraising.

Warburg’s debut China fund, a sidecar vehicle to $13.4 billion Warburg Pincus Private Equity XII, closed on its $2 billion hard-cap in December 2016. That fund is about three-quarters invested, the source added. Capital from the fund has been invested in a range of transactions, from Ant Financial’s mega-funding round in June that raised $14 billion, to the acquisition of assisted reproductive technology company Jinxin Fertility, as well as online tutoring company Zhangmen.

Fund I delivered a 22.35 percent net internal rate of return and 1.1x investment multiple, according to Washington State Investment Board data as of 31 March 2018.

China-focused fundraising has more than doubled this year – from a total of $7.8 billion in 2017 to about $20 billion as of mid-November 2018, according to PEI data. CITICPE  raised $2.3 billion in July for its third fund focused on buyouts, while Orchid Asia collected $1.3 billion in January for its seventh fund.

Among China-focused funds on the fundraising trail include CDH Investments, which is looking to raise $2.5 billion for its sixth flagship fund; Primavera Capital Group which is reportedly targeting $2.8 billion for its third vehicle; and Trustbridge Partners which is seeking $1.5 billion for its sixth fund.

Emerging managers Centurium Capital, Dehong Capital Partners and Nexus Point Partners are also in market, collectively targeting more than $3 billion between them.