For a prime example of investor chutzpah, look no further than China Investment Corp, the country’s mega sovereign wealth fund, which has just done a deal with Apax to invest €685m (£599m) in the UK private equity group’s €11.2bn buy-out fund.
Even after heavy domestic criticism – and some international derision – for spending $3bn two years ago to acquire 10 per cent of Blackstone just before shares in the US buy-out group tanked – CIC has come roaring back with a big appetite for big deals. This after sitting on the sidelines for most of last year with about 90 per cent of its available funds in cash.
And CIC’s masters are evidently just as hungry for deals. Beijing is now preparing to inject another wack of “shopping” money which, as the FT reported in December, is likely to be a similar amount to the initial $200bn with which it set up CIC in 2007.
This time, CIC is taking a new approach with its Apax deal. As the FT reports on Wednesday, the deal “could tempt other private equity groups” to look to China. As it explains:
Apax offered investors in its latest fund the option to transfer as much as €800m of their unfunded commitments – the part of their investments still to be called for future deals – to the Chinese fund.
This gave CIC, which did not invest in the fund initially, access to Apax’s future investments, while allowing investors who were over-exposed to private equity or short of cash to escape from commitments to fund future deals.
According to the FT, the deal is the first of its kind and could be a model for other private equity groups to deal with cash-strapped investors without shrinking their funds.
As part of the deal, CIC has also acquired a 2.3 per cent stake in the Apax Partners LLP, the UK group’s management company. By buying into Apax’s management, it joins GIC and Future Fund, the Singaporean and Australian sovereign wealth funds, which bought 7.7 per cent of Apax last year.
The proceeds of the sales would go into a permanent capital vehicle to invest in Apax’s future fundraisings, noted the FT.
Apax is certainly wasting no time in making the most of what it portrays as some very shrewd deal-making.
Martin Halusa , Apax’s chief executive, was quoted crowing saying: “This is a real coup, it is a really innovative solution that no one else has come up with, offering a better version of a secondary trade for investors.”
Apax Europe VII has made 15 investments, including UK publishing group Emap, Weather Investments, an Italian tele-coms group, and D+S Europe, a German e-commerce company.
These investments amounted to a negative annual return of 38 per cent last year, according to Calstrs. But in buy-out game, investors regard it as one of the better performing big buy-out funds, adds the FT.
Curious, then, that CIC chairman Lou Jiwei, told a forum in Hong Kong last month that the fund’s top priority this year was investing in emerging markets, particularly Asian ones, where “opportunities are more plentiful than elsewhere”.
Related links:
China sovereign fund focuses on emerging markets – WSJ
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