China’s Most Prominent Financier Launches $2 Billion Fund
China's most prominent and politically connected financier is raising a new $2 billion -$2.5 billion fund for investments in China and abroad, according to people familiar with the matter.
Fang Fenglei, the non-executive chairman of Goldman Sachs' China subsidiaries, is raising money for a new fund to be called "Hopu Master Fund II" more than two years after he abruptly wound down his last private equity venture.
Mr. Fang, 61, whose given name means "wind and thunder", is renowned as the most politically connected and savvy banker in Chinese financial circles, and the launch of his new fund has already drawn strong interest from investors.
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He has very close ties to Wang Qishan, the member of China's ruling seven-member Politburo Standing Committee in charge of fighting corruption, and he remains the titular chairman and majority shareholder of Goldman Sachs' operations in China.
The new fund has already raised more than $1 billion, people close to the situation said.
His decision to retire from daily operations at Goldman and establish his own private equity group in 2007 caused consternation at the U.S. bank, which had effectively entrusted its future in China to Mr. Fang in 2004 through a complicated shareholding arrangement.
The two sides eventually came to an agreement and Goldman invested about $300 million in a $2.5 billion fund raised by Mr. Fang's Hopu Investment Management, one of the largest first-time private equity fundraisings ever seen in Asia.
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The fund, which was jointly managed by ex-Goldman banker Richard Ong and former KPMG partner Dominic Ho, made headlines by snapping up large stakes in Chinese banks from U.S. and European institutions in the wake of the global financial crisis.
The fund was soon fully invested and was generating an internal rate of return of more than 40 per cent by the end of last year but Mr. Ong and Mr. Ho both retired from Hopu in late 2010 and Mr. Fang decided not to raise another fund at that time.
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As part of the complicated structure used by Goldman to enter China, the majority shareholdings in the bank's China subsidiaries – Beijing Gaohua Securities and Goldman Sachs Gaohua – remain in Mr. Fang's name although those shareholdings were bought with a roughly $200 million loan from Goldman that gives the bank effective control.
This arrangement, originally proposed by Mr. Fang and backed by special approval from China's State Council, allowed Goldman to gain majority control over a China subsidiary before any of its global competitors.
"He's like the wise old man on the hill, Goldman goes up to see him now and then to ask for advice and his view on things but he has no involvement in the daily running of things," said one person familiar with the current arrangement.
A foreign investor in Chinese private equity funds said his company had been approached by Hopu but was wary of backing the new fund despite Mr.Fang's credentials.
"Fang gets the Chinese market and is well connected to [state-owned enterprises], which makes him an excellent investor. But the wind-down of his first fund was so abrupt and that is a concern," he said.
He added that the new Hopu fund would require a 10-year lock-up from investors, which he said was hard to justify given Mr. Fang's limited record.
Goldman and Hopu declined to comment.