Morgan Stanley aims to raise 1.5 billion yuan in China PE fund
By Samuel Shen and Kazunori Takada
HANGZHOU, China (Reuters) - Morgan Stanley <MS.N> aims to raise 1.5 billion yuan ($230 million) in its first yuan-denominated private equity fund in China, joining rivals such as the Carlyle Group and Blackstone <BX.N> for a piece of the booming market.
The fund, to be launched through Morgan Stanley's newly established China yuan private equity unit, will focus on assets in the affluent eastern province of Zhejiang, it said.
"In line with our strategy to continue to expand our domestic footprint in China, the new RMB private equity fund adds to a broad suite of financial services and products that Morgan Stanley offers to institutional and individual clients," co-chief executive officer of Morgan Stanley Asia Pacific Wei Sun Christianson said in Hangzhou, where the fund will be based.
Global banks and buyout firms including Blackstone, Carlyle <CYL.UL> and TPG <TPG.UL> are rushing to launch yuan funds in China, seeking easier access to mainland investments as well as local investors.
China is hoping that the entry of foreign expertise can boost the domestic private equity market, so as to improve local corporate governance and channel more money into the private sector to aid economic growth.
Morgan Stanley will launch the new yuan fund through Morgan Stanley (China) Private Equity Investment Management Co, a joint venture with Hangzhou Industrial & Commercial Trust Co.
The U.S. Investment bank holds an 80 percent stake in the venture, with the remaining interest owned by Hangzhou Trust, in which Morgan Stanley bought a 19.9 percent stake in November 2008.
Last week, Goldman Sachs signed a partnership agreement with the local government of Beijing, aiming to raise up to 5 billion yuan for a yuan-denominated private equity fund in China, a source familiar with the matter told Reuters. [nN12282510]
Many other foreign players, including TPG, Carlyle and First Eastern Investment, have unveiled similar fundraising plans, since Blackstone in 2009 became the first foreign private equity firm to launch a yuan fund in China.
By launching yuan funds, it allows foreign private equity firms to access deals more easily and face less regulatory scrutiny.
Previously, institutions such as Goldman and Carlyle invested in Chinese companies through offshore dollar-denominated funds. But investing and exits were often complicated by China's strict capital controls.
For example, Carlyle's planned acquisition of Xugong Group Construction Machinery Co, one of China's biggest machinery makers, was shot down by the government on concerns about foreign monopolies.
Morgan Stanley has been actively investing in Chinese companies for more than 18 years through its Asia private equity unit. Its portfolio companies including Ping An Insurance <2318.HK> <601318.HK>, Mengniu Dairy <2319.HK> and Belle International <1880.HK>.
Morgan Stanley entered the China market in 1993 and has developed a diversified business platform in the country that includes a wholly owned commercial bank, a mutual fund venture and a trust venture.
Morgan Stanley has also received regulatory approval to set up a securities venture in China, after selling its stake in China International Capital Corp late last year.
(Editing by Ken Wills)