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ReutersPrivate equity firms are going gangbusters raising Chinese yuan-denominated funds. According to the Wall Street Journal, Carlyle Group and Kohlberg Kravis Roberts & Co. are contemplating raising such funds, and Blackstone Group LP and Macquarie Group Ltd. also have set plans to do so.
However, not everybody is going down this road. Some firms that have done deals in China for years said they don't have immediate plans to pursue a similar path.
"We have talked about this possibility for years," said Thomas Quinn, managing principal of middle-market buyout firm The Jordan Co., which has been investing in China since 1994. "Obviously having a yuan fund helps to get deals done more quickly. But it can also present challenges."
A major concern, Quinn said, is the difficulty of splitting deals between the yuan fund and existing global buyout funds. Splitting deals between yuan- and non-yuan-denominated funds is a prickly issue, as investors in both groups of funds want access to quality deals in China. Typically, the two investor groups don't overlap much, as yuan funds are set up particularly to attract Chinese investors. The funds may also carry different terms such as those determining the split of carry.
Quinn said there are ways to get around the problem, such as having the yuan fund and the global funds invest on a pro rata basis. In general, "We are very careful," Quinn said. "As the policy evolves, we would consider it."
According to Paul Edgerley, managing director of Bain Capital LLC, the key to get around the issue is to "have an agreement upfront about where you want the capital to come from." The pact can call for each fund to invest in a deal proportionally, but stipulate clearly the circumstances where only the yuan fund will be used.
Bain, which has been investing in China for about five years and recently made an investment in electronic goods retailer GOME Electrical Appliances Holdings Ltd., isn't in a hurry to raise a yuan fund, either.
"We are not actively pursuing that right now," Edgerley said. "We will let it play out a little bit and see how it evolves over time."
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