July 7, 2017 / 10:25 AM / 15 days ago

Hillhouse Capital plans new yuan fund to tap demand for China exposure: sources

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HONG KONG (Reuters) - Hillhouse Capital Group, an early investor in top Chinese technology firms including Tencent, Baidu and JD.com, plans to raise a new yuan-denominated fund and is currently pitching it to prospective investors, sources familiar with the plans said.

Hillhouse is targeting to raise about 8 billion yuan ($1.2 billion) in the fund, said one of the sources.

Venture capital and private equity funds are lining up to raise funds in yuan, tapping into the appetite of investors eager to grab opportunities in domestic Chinese businesses that are typically restricted to overseas buyers and as startup founders prepare to take their companies public in local markets.

Fund managers are also looking to benefit from growing sources of capital at insurance firms and other large domestic institutional investors, as well as wealthy individuals looking to boost returns in alternative assets, analysts and investors said.

"It's a very sizeable pool of capital that is looking for investment opportunities and the channels to raise funds have improved," said an investor in several China-focused funds who was not authorized to speak publicly about the industry.

"If you have enough of a local investment program, you can find opportunities to invest locally in yuan as well, so it makes sense to raise those funds."

Investment managers have raised 59.6 billion yuan in funds denominated in the Chinese currency so far in 2017, compared with 64.4 billion yuan in all of 2016, according to data provider Preqin. That would put this year on pace to be the biggest since 2012, when 145.8 billion yuan in aggregate capital was raised.

Hillhouse declined to comment. The sources did not want to be named because the capital raising plans are not public.

The investment firm, founded in 2005 by Zhang Lei with seed funds from Yale University's endowment, has raised yuan-denominated funds before and is among several China-focused investment managers such as Qiming Venture Partners and Sequoia Capital China that have funds in both U.S. and Chinese currencies.

But increasingly companies that previously only targeted U.S. dollar fundraising are also launching yuan funds. Lightspeed China Partners and Morningside Venture Capital closed their debut yuan funds earlier this year.

And GGV Capital, an early backer of Chinese e-commerce giant Alibaba Group Holding, ride hailing firm Didi Chuxing and phone maker Xiaomi Inc, was also looking to launch its first fund in yuan.

Reporting by Elzio Barreto and Julie Zhu; Editing by Muralikumar Anantharaman

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