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Source: Wallstreet Journal July 10, 2014
A consortium of foreign and Chinese private-equity firms is aiming to raise about $1.5 billion to invest abroad, with the yuan-denominated portion of the fund to be converted to U.S. dollars through Shanghai's free-trade zone.
The fund—launched by Chinese asset managers Bohai Industrial Investment Fund Management Co. and Harvest Fund Management Co. alongside U.S. investment and advisory firms Rosemont Seneca Partners and Thornton Group LLC—started fundraising in the second quarter, and has raised its target to $1.5 billion from an original $1 billion plan, a spokesman at Bank of China International Holdings Ltd. said. BOCI is one of the largest stakeholders in Bohai.
The Bohai-Harvest fund is likely one of the biggest Sino-foreign collaborations in private equity to take advantage of the free-trade zone's benefits in converting yuan to dollars that can then be invested in foreign companies. The funds are raising a combination of yuan and U.S. dollars. The effort is the latest example private equity pushing boundaries in an area that China hopes will help drive the country's economic transformation. Normally, China restricts free conversion of its currency.
Bohai and its partners are expected to finish fundraising by the end of this year, according to BOCI's spokesman and Lindsay Wright, co-chief executive officer of Harvest Capital Management Co., the subsidiary under Harvest that will hold a direct stake in the joint fund.
Both declined to comment on how much has been raised so far. Rosemont confirmed the expansion of the fund. Thornton didn't respond to requests for comment.
Covering 29-square kilometers in Shanghai's eastern Pudong region, the free-trade zone was created last September as a test lab for China's economic reforms, including exchange-rate liberalization. Thousands of companies, ranging from international banks to technology firms and investment managers, have registered to do business in the zone to benefit from the easing of Chinese financial and investment regulations.
Chinese investors usually need approval from several authorities for foreign buyouts, a lengthy process that can make them less competitive abroad. But investing via the free-trade zone cuts down on that time. Any project in the zone valued at $300 million or less qualifies for a simpler filing, as long as it isn't considered a national security threat.
Homegrown private-equity firm Hony Capital Ltd. was the first among its peers to benefit from simplified administration approvals for outbound investments in Shanghai's free-trade zone. As an early registrant, the firm has completed two deals through the zone, teaming up with Suning Commerce Group Co. to co-invest in Chinese video website PPTV in April and buying U.S. based production firm STX Filmworks Inc. in March, according to a Hony spokeswoman, who declined to provide further details.
The fundraising by Bohai follows the registration of management firm Bohai Harvest RST (Shanghai) Equity Investment Fund Management Co. in Shanghai's free-trade zone in December. The firm, branded under the English acronym for the owners—BHR Partners—originally set out to raise three billion yuan in the Chinese currency and $500 million in U.S. dollars, according to its website.
Bohai is China's oldest private-equity firm, having launched the country's first yuan-denominated fund in 2006. Harvest Fund Management is one of China's largest asset managers, with previous private equity ventures, including with a jointly held fund investing in both domestic and overseas real estate. Rosemont Seneca is a Washington, D. C-based investment and advisory firm run by Hunter Biden, the son of U.S. Vice President Joe Biden. Thornton Group is a Boston-based cross-border investment advisory firm.
The joint fund will focus on cross-border merger and acquisition opportunities, focused in four sectors—high-end manufacturing, financials, consumer, and energy and resources. Within the latter, the fund will focus on natural gas, according to Ms. Wright.
Hunter Biden has experience in natural gas, having joined the board of Ukrainian gas producer Burisma Holdings Ltd. earlier this year. Burisma is controlled by a former top security and energy official for deposed President Viktor Yanukovych.
Bohai, Harvest, and Rosemont and Thornton as a pair, each own a 30% stake in the joint management firm, according to Ms. Wright.
(Please see the following link for more details: http://online.wsj.com/articles/bohai-harvest-and-u-s-investment-firms-expand-target-for-outbound-fund-1404956572)