Links ~ US-Linked Yuan-Based Private Equity Funds Exploding ... and .. related article ~ Carlyle to Form Buyout Fund With Beijing Government and ..U.S. and China - Private Equity Currency Funds and .. Blackstone Seeks to Invest in the Banking Market in BritainNovember 25, 2011
J.P. Morgan Gets Yuan Fund Approval
Hong Kong, J.P. Morgan Asset Management, an arm of U.S. bank J.P. Morgan Chase & Co., received permission from the Beijing city government to create a $1 billion RMB fund under the new Qualified Foreign Limited Partner program, people familiar with the matter said, allowing the U.S. firm to become the biggest foreign manager of a yuan-denominated fund to date.
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As a QFLP license holder, J.P. Morgan Asset Management, which makes private-equity investments, can convert up to $1 billion worth of foreign investors' currencies into yuan for private investment in and around Beijing. RMB funds refer to funds denominated in renminbi, the official name for China's currency, which is also known as the yuan. The $1 billion represents a third of the Beijing city government's QFLP quota of $3 billion.
Two people familiar with the situation said J.P. Morgan Asset Management is in talks with investors outside China and onshore, including private and institutional clients, to raise a $1 billion RMB fund. They said J.P. Morgan will run the fund, to be called the JPM China Private Equity Fund, as a joint venture with the Beijing city government. It wasn't immediately clear if the Beijing government would invest in the fund.
One of the two people familiar with the matter said the fund will invest in a wide variety of sectors, including consumer-related services, health care, technology and media.
J.P. Morgan Asset Management declined to comment. Multiple divisions of the Beijing city government didn't return calls seeking comment.
Created this year, the QFLP program makes it easier to invest offshore money in yuan-denominated funds. It enables fund managers to bypass foreign-exchange controls, including receiving approval from China's State Administration of Foreign Exchange.
The people familiar with the situation said Beijing and Shanghai this year began pilot programs with quotas worth $3 billion each, while Chongqing and Tianjin have launched pilot programs with quotas from $1.5 billion to $3 billion.
The Shanghai government has already granted some of its quota to private-equity firms, including Blackstone Group L.P. and Carlyle Group L.P., with allocations of about $100 million each, the people said. Still, the reach of these QFLP-allocated funds won't be nationwide.
"We have seen surging interest from foreign players about getting into these regimes," said Florence Yip, a tax partner at PWC. "But these programs, while allowing foreign firms to invest in RMB funds, are unclear as to whether they may invest beyond the geographical location of the QFLP program."
Private-equity RMB funds have greater access to restricted industries—from precious metals miners to financial leasing companies—than U.S.-dollar denominated China funds, although they are still forbidden to invest in media, compulsory education and gambling.
Private-equity firms outside China see RMB funds as a means of cracking a tough mainland market. RMB funds enable the firms to cut through the bureaucratic approval process and invest more like local players, including exiting their investments by listing them on mainland Chinese stock exchanges.
According to the Centre for Asia Private Equity Research Ltd., Asia funds have raised $37.6 billion this year, including $21.7 billion by China funds and $13.5 billion by RMB funds. In the past four years, RMB funds have raised $42.7 billion, or 60% of the $71.8 billion raised by China funds. RMB funds account for 27% of all Asia funds raised in the last four years.
China's biggest RMB funds remain those raised by local investors, with the largest so far being the 50 billion yuan ($7.86 billion) fund now being raised by the state-owned Shanghai Shipping & Logistic Industrial Fund Management Co., according to the Centre for Asia Private Equity Research.
The largest foreign-raised RMB fund is the Israeli investment firm Infinity Group's six billion yuan Chongqing Infinity RMB Fund.
Blackstone Group and Carlyle Group are each raising money for separate five billion yuan RMB funds, according to people familiar with the situations and the Centre for Asia Private Equity Research. TPG Capital is also in the process of creating an RMB fund, according to the center.
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