Morgan Stanley, Hangzhou to launch yuan PE fund

Updated: 2010-12-03 17:39
Large Medium Small

Morgan Stanley has joined global buyout firms such as Blackstone Group and Carlyle Group in a rush to tap China's booming private equity market, partnering with the eastern city of Hangzhou to launch yuan-denominated funds, Reuters reported on Dec 3.

Morgan Stanley has signed a partnership agreement with the local government and has decided to establish its China headquarters for private equity investment in the city, the Hangzhou government said on its website.

Morgan Stanley and its partner aim to raise 1.5 billion yuan ($225 million) in the initial phase, a source with direct knowledge of the plan told Reuters. It will invest in non-public companies. Earlier this week, Chinese media reported that US private equity giants Warburg Pincus and Kohlberg Kravis Roberts & Co planned to set up units in Shanghai to launch yuan funds, following in the footsteps of rivals Blackstone, Carlyle and Bain Capital.

China is encouraging the development of the private equity industry, hoping to channel more liquidity into the private sector to aid economic growth. Beijing also expects to use foreign expertise to improve corporate governance.

"We hope that the partnership with Morgan Stanley would help boost private sector investment, accelerate economic restructuring and boost the local private equity industry," the Hangzhou city government said in a statement.

A Morgan Stanley spokesperson declined to comment.

Trust investment

Morgan Stanley's tie-up with Hangzhou follows its acquiring a 20 percent stake in the government-backed Hangzhou Industrial & Commercial Trust Co in 2008. Chinese cities, including Hangzhou, Shanghai and Beijing, are competing to woo foreign private equity firms with tax and other incentives.

"Partnering with local governments will make fundraising in China much easier for those global private equity firms," said Wesley Li, analyst at Beijing-based consultancy ChinaVenture. "With government backing, foreign firms could also access those companies or sectors that would otherwise be off limits to foreign investment."

Related readings:
Morgan Stanley, Hangzhou to launch yuan PE fund Chinese PEs, more room for growth
Morgan Stanley, Hangzhou to launch yuan PE fund Chinese PE fund for ASEAN under way
Morgan Stanley, Hangzhou to launch yuan PE fund Chinese funds take battle to foreign PE
Morgan Stanley, Hangzhou to launch yuan PE fund Carlyle to set up PE joint venture in Beijing

China forbids foreign investment in certain sectors deemed strategically important, while encouraging it in others. TPG, one of the world's biggest private equity firms, launched in August two 5-billion-yuan funds, in Shanghai and western Chongqing, through partnership with the cities' respective governments.

Carlyle has partnered with the Beijing government as well as Shanghai-based Fosun Group to launch yuan funds. Morgan Stanley's private equity unit has conducted over $6 billion in transactions globally since 1985, and in China, the investment bank has made private equity investments in companies including insurer Ping An, dairy producer Mengniu and shoe seller Belle International.

Morgan Stanley is also planning to set up a brokerage joint venture with China Fortune Securities Co, after selling its stake in China International Capital Corp (CICC).

Fortune Securities shareholders said this week they had agreed to the joint venture plans with Morgan Stanley, signaling that the long-planned venture will go ahead soon.