China Renaissance has expanded its asset management business with an array of strategies and approaches to investing in companies across high-growth sectors of China’s economy.
The business will offer a range of options for investors who want exposure to “new economy” entrepreneurs, those with progressive business models built around innovations in technology, media, and entertainment (TME) as well as healthcare and life sciences.
China Renaissance has built its asset management business around its longstanding focus on TME companies. Its proprietary investments in China’s most prominent TME firms have formed the basis for developing an independent fund management business that is run as a distinct operating unit on behalf of limited partner investors. Current investors include funds of funds, family offices, financial institutions, corporations, and high-net-worth individuals, mostly from China.
Additionally, China Renaissance has established separate investment teams to focus on innovations in China’s healthcare sector and opportunities in mezzanine securities issued by new economy companies.
Each part of the business has its own investment committee, portfolio managers, and research teams. This approach allows them to stay ahead of industry trends, understand the factors affecting the business and valuations of their portfolio companies, and make the most informed investment and exit decisions.
Total assets under management is today over USD3 billion across USD and RMB funds. The firm aims to reach USD10 billion in total AUM by 2020 as it grows its investor base internationally and adds asset classes and investment strategies, including hedge funds, to its platform. The 2020 AUM target anticipates 30-40 per cent of capital coming from investors outside China, including sovereign wealth funds, hedge funds, and asset managers in North America, the Middle East, and the broader Asia region.
“The asset management business has grown naturally from our proprietary investing and our focus on supporting entrepreneurs contributing new sources of economic growth in China,” says Fan Bao, Chairman and Chief Executive Officer of China Renaissance. “The maturation of China’s market – with disruption in both consumer and business-to-business verticals, abundant capital, and the vast scale at which innovations come to market – has created unique opportunities and challenges for entrepreneurs and investors. Our ability to navigate these conditions allows us to play a crucial role as a partner to China’s business visionaries and the investors providing the capital for their growth in partnership with our funds.”
Huaxing Growth Capital, the flagship of the asset management business, targets revenue generating companies with products and services for which there is an established market demand and the potential to scale the business into a “unicorn” with a valuation over USD1 billion.
It pursues a thematic investing approach to uncover business models that will benefit from long-term trends in technology innovation, industry transformation through automation and other advancements, and rising standards of consumption and lifestyle amenities in China.
Huaxing Growth Capital has evolved to a scale where it expects to make larger investments than in the past, in the range of USD20 million to USD70 million, often with an accompanying board seat, and to lead or co-lead a majority of the deals in which it participates.
Total Huaxing Growth Capital AUM is currently USD2.86 billion. Year-to-date it has invested nearly USD210 million from its USD and RMB funds, with its largest investments in Lianjia, an online platform for real estate transactions; Zhaogang, an online exchange for commercial steel trading; and JD Finance, the internet-based financial services unit spun off from the e-commerce company JD.com.
“We have been a supporter of Huaxing from day one,” says Waikit Koh, a senior executive with Pavilion Capital, a Huaxing Growth Capital investor. “China Renaissance is a leading player in China’s “new economy” and the team is positioned to capture the best investment opportunities. Their funds have performed well and we look forward to seeing the team scale greater heights.”
Huaxing Healthcare was launched in late 2016 to make private equity investments in medical device and biotechnology companies, and has already invested most of the over USD200 million it has raised.
The healthcare team will generally invest in or acquire companies in parts of healthcare market where there is an opportunity for consolidation or where innovations can be brought to greater scale through transactions, such as a merger or follow on acquisition.
In addition, the healthcare team may help portfolio companies pursue transactions in other countries in order to acquire technology or expertise to bring to China or to establish a platform for cross-border sales and product development.
Huaxing Healthcare generally targets middle-to-later-stage growth companies with an established business as well as early-stage biotech companies. Recent investments include equity positions in medical device companies specialising in endovascular technology and heart valves.
Huaxing Mezzanine is an important complement to the TME and healthcare equity funds. It will offer an alternative financing option to China Renaissance’s new economy clients and portfolio companies while providing regular distributions to its limited partner investors.
The mezzanine portfolio is expected to include short-duration private loans, transaction financing, and mezzanine tranches of asset-backed securities negotiated directly with individual companies.
Huaxing Mezzanine expects to begin operations in the first half of 2018.