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Report: CITIC to launch venture, buyout funds

Hong Kong-based CITIC Capital is reportedly in talks with China's national pension fund and the China Development Bank to set up a buyout and a venture fund.

Alternative investments manager CITIC Capital is to launch a buyout and a venture capital fund in partnership with Chinese institutions, according to a Reuters report.

“We are seeking cooperation with the National Social Security Fund (NSSF) to launch a buyout fund, which will be our second buyout fund,” Zhang Yichen, chief executive officer of CITIC Capital, told Reuters. It was reported in August 2008 that NSSF and CITIC Group, the parent company of CITIC Capital, were likely to invest RMB1 billion ($146 million; €116 million) each to such a fund.

The firm also intends to launch a venture capital fund with China Development Bank, which is transforming from a policy bank into a commercial lender, Zhang said.

He said that CITIC Capital is looking forward to cooperating with the government, “which holds a lot of cash and resources”, adding that the firm was competing with other private equity fund managers to draw investments from the national pension fund. 

The private equity fund being raised with the NSSF will focus on sectors linked to the government's plans to boost domestic demand, according to Dow Jones. The report also quoted Zhang as saying that CITIC is “quite interested” in the consumption goods sector.

The proposed sizes of the two funds were not disclosed.

The firm currently manages separate private equity funds focused on investments in China, Japan and the US. In China, it is investing out of the $425 million CITIC China Capital Partners, which closed in May 2007, and makes buyout and strategic minority investments.

In January, the firm closed a $400 million China-focused real estate fund to make value-add investments in distressed properties and to invest with domestic developers in need of capital.

Besides private equity and real estate, the firm is also engaged in debt and mezzanine finance, asset management and special situations investments. In total, it manages assets in excess of $1.6 billion.

China’s NSSF manages assets of RMB516 billion. In 2008, the pension fund was permitted to invest up to 10 percent of its assets in domestic private equity funds for the first time. It has since invested in RMB funds managed by Hony Capital and CDH Investments, prominent Chinese private equity firms. In December 2008, it also reportedly agreed to commit capital to RMB funds being raised by Shenzhen Capital Group, a venture capital firm affiliated to the Shenzhen government, and Science and Merchants Investment Management, which is affiliated to the government of Shanxi province.

CITIC was unavailable for comment at press time.