PE fund briefs, week of June 22, 2009

Blackstone plans China subsidiary

The Blackstone Group is in talks with the Shanghai city government to set up a wholly-owned China subsidiary, sources said last week.

The Shanghai Financial Service Office, led by the city government, has given strong backing to senior Blackstone executives, hoping it could be the first foreign firm to make such a move, said government and financial sources close to the situation.

The sources said it is too early to estimate the size of Blackstone’s first Yuan fund, but most Yuan funds launched by domestic private equity firms are usually between $732 million (5 billion Yuan) and about $1.5 billion (10 billion Yuan).

Earlier this year, China’s cabinet announced in a series of pro-Shanghai policies that it would support the city’s aim to be an international financial centre by 2020.

Fu Shan, China representative for Blackstone, which already has an office in Beijing, declined to comment.

Blackstone’s Greater China Chairman Anthony Leung, a former Hong Kong Financial Secretary, said in November that the firm would not slow its investments in China despite the global financial crisis, as high economic growth and low valuations promised good returns.

China has at times been at odds with global private equity firms, thwarting moves by foreign investors. But Beijing has pledged since late last year to develop Yuan-denominated funds, often run by domestic managers.

“This will be a very popular trend for foreign funds to come to Shanghai, set up your office and raise your first Yuan fund soon,” said Jay Chen, founding partner of industry researcher ChinaVenture in Shanghai.

In addition to Blackstone, other firms possibly interested in such a move include U.S.-based venture firm Sequoia Capital, which last year raised about $150 million (1 billion Yuan) for its first Yuan-denominated venture fund to focus on small China deals. —George Chen and Megan Davies, Reuters

GI Partners nears $2B in pledges

GI Partners is edging closer to a revised target for its latest fund, as the Menlo Park, Calif.-based shop has secured a total of $1.94 billion for GI Partners Fund III to date.

The pool’s target is now $2.25 billion, a slight paring down from its previous goal of $2.5 billion. Fund II closed in 2006 with commitments of $1.45 billion and is fully invested.

Limited partners include the Los Angeles Fire and Police Pension System and the Teachers’ Retirement System of Illinois. The California Public Employees’ Retirement System has been an anchor LP for the firm in the past, providing 95% of the capital for its first fund, a $500 million pledge, that it also matched for the second pool.

GI Partners wasn’t immediately available for comment.

GI Partners, which also has an office in London, is a mid-market firm that invests in the United States and Western Europe. The firm has done a single deal from fund III so far, acquiring Care Aspirations, a provider of mental health services in the United Kingdom, in late August 2008. —Michael Baron

New LPs crowd into latest fund of Riverside

The Riverside Co. has significantly widened its investor base with its latest fund. Despite an effort elongated by the financial crisis, the New York-based firm, known for being an active investor in the small end of the middle market, recently wrapped Riverside Capital Appreciation Fund V at $1.17 billion, bringing the pool in 30% above its $900 million target.

The firm reported that 45% of the limited partners were first-timers, a figure that wasn’t necessarily the goal when the firm began fund-raising in March 2008.

“If not for the credit crunch, the breakdown probably would have been between 60% and 65% re-ups,” said Béla Szigethy.

That was roughly the ratio for Riverside Capital Appreciation Fund 2003, which closed in March 2004 with $750 million in commitments.

Szigethy said the firm would likely have been able to close fund V in December 2008 if not for the economic crisis that gripped the public markets in September 2008.

LPs committing to fund V include the Illinois State Board of Investment, Massachusetts Mutual Life Insurance Co., Oregon State Treasury, City of Philadelphia Board of Pensions and Retirement and University of Washington. —Michael Baron