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PAG is setting up a China fund to lure domestic capital and is considering establishing another that will cater to demand from investors outside of North America, according to sources familiar with the matter.
Asia’s biggest alternative asset manager raised about three billion yuan (S$555 million) for its first yuan-denominated fund with money from local governments and affiliates in Jiangsu province, the sources said, asking not to be identified discussing private information. PAG is also considering raising up to US$1 billion to accommodate interest from non-North American investors looking for specific China exposure for a separate fund, the sources said.
PAG is a rare optimist on China’s prospects among global buyout firms at a time of retrenchment from some of the biggest US and Canadian pension funds that have pared investments there. China exposure at TPG, Carlyle and KKR have fallen, while they have beefed up their presence in countries such as Japan, India, Australia and South Korea.
A spokesperson for PAG declined to comment. The finance department of Jiangsu provincial government said in a faxed response to inquiries that it had not invested in PAG’s fund but had no knowledge of whether city- and county-level governments in the province participated.
PAG may raise the China-focused US dollar fund under the Qualified Foreign Limited Partnership pilot programme, which allows foreign capital to invest in China domiciled funds, after certain global investors outside of North America expressed interest for China exposure. The size may range from a few hundred million US dollars up to US$1 billion, the sources said. No final decision has been made on how to cater to the demand and the plans could change.
Such a fund would enable the firm to cater to increasing appetite from Middle East and Asia-based investors seeking to bolster investments in China where the decline in the value of some assets is seen to be bottoming out, the sources said.
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Private equity industry firms can use yuan-denominated funds to tap local capital sources such as financial institutions and high-net-worth individuals. Warburg Pincus last year launched its maiden three billion yuan fund, while Coller Capital is raising 1.5 billion yuan as it expects more Chinese funds exits.
Separately, PAG will close the fundraising for its latest buyout fund at US$4 billion this month, reaching less than half of its original target as investors baulk at putting new cash into the region, sources familiar said earlier.
Other large firms are seeing a drop in exposure in Asia’s biggest economy. Temasek Holdings Pte’s investments in China are now smaller than those in the Americas for the first time in at least a decade. BLOOMBERG
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