Overcoming China’s Currency Control Hurdles

Last week, I spoke to Eaton Partners’ Chris Lerner about how U.S. fund managers may access Chinese investors. Given the inquires I’ve received on the topic, I caught up this week with Geoffrey Chan, a fund formation lawyer at Skadden Arps’s Hong Kong office, to get more details on ways that a U.S. private equity firm may get around China’s currency controls to raise dollar-denominated funds. Inside China, this week’s news focuses on the high leverage levels at the state-owned sector, which dominated a meeting of the Chinese cabinet, the State Council. A statement from the meeting vows to speed up cleansing of “zombie enterprises” in part by accelerating their bankruptcy restructuring and implementing the newly announced debt/equity swap rules. Speaking of cleaning up banks’ balance sheets, a pilot program re-launched two years ago that sought to securitize nonperforming loans and sell to accredited investors has had a limited impact on the reduction of bad loans, writes our reporter Jane Yi Zhang. The practice was hampered by high costs for the issuing banks and a lack of investors and trading opportunity. “Global investors and PEs are interested in the market, but the banks are cautious about selling to foreign investors... Read more

The Fundraising Conversation

For some fund managers, raising capital is a full-time job. And more are turning their gaze east. China is emerging as an important source of institutional and high net worth individual investors – with a burgeoning middle class, a maturing capital market and a government keen on importing investment know-how. Sequoia is reportedly raising its largest-ever $8 billion war chest and is said to be targeting Chinese investors. Carlyle and WL Ross & Co. are among firms currently raising yuan-denominated vehicles. With a different language and culture, however, the market can be daunting. I caught up with Chris Lerner, partner and head of Asia at placement agent Eaton Partners to get the latest of fundraising trends in China. “Everyone’s got a friend and a story that someone has raised money out of China or out of the region,” he said. “That doesn’t necessarily translate into a clear, viable path to dialogue around institutional investor commitment.” “If you don’t know where to start, you can waste a lot of time giving people a free education.” Read the full interview here. Talking about fundraising, the Beijing municipality is opening its arms wider to Western PE, VC and mutual funds, writes our reporter Jane Yi... Read more