Former KKR execs bring in $2.5B for China-focused funds

A pair of KKR alums in China have gone big with their debut buyout funds for the region.

Private equity firm DCP Capital has reportedly raised some $2.5 billion for its inaugural US dollar- and yuan-denominated funds. That total includes more than $2 billion for DCP Capital Partner I, with the rest going to a yuan vehicle raised at the same time. Among the LPs, per reports: Singaporean investors GIC and Temasek, along with Canadian public pension fund Caisse de depot et placement du Quebec.

DCP was founded in 2017 by David Liu, the former head of Greater China at KKR, and former KKR executive Julian Wolhardt, who also worked in the region. The firm will reportedly make majority and minority investment in China's healthcare, IT and consumer sectors; its goal is to net a 25% return, per Bloomberg.

In a recent analyst note, PitchBook analysts credited domestic private equity firms such as DCP with helping drive growth in the region over the past decade. In fact, domestic funds have accounted for more than two-thirds of new offerings in the country, though there’s been a recent deleveraging campaign from the Chinese government that could cut into that figure.

From the analyst note:

Just 7% of (private equity) funds were denominated in RMB in 2018, among the lowest levels in the last decade. Much of this decrease has come from the unwinding of domestic PE firms (which tend to raise funds denominated in RMB). … Going forward, however, we expect non-Chinese firms to pursue a similar mix of RMB versus USD (or other) denominated funds given that many of the benefits to raising a fund in RMB remain intact.

The benefits of raising a fund in RMB are far-reaching, per the analyst note: There's less regulatory oversight, no restrictions on what sector they can invest in and no restrictions on how they can exit. With US dollar-denominated funds, foreign investors aren't allowed to exit through an initial public offering on any of the country’s public stock exchanges. Yet, more than half of the capital flowing into the region in 2018 still came via foreign investors.

TPG Capital became the latest to join in on Asia-focused fundraising in February when it closed a fund on $4.6 billion, joining the likes of KKR ($9.3 billion in 2017), The Carlyle Group ($6.6 billion in June 2018), and Bain Capital ($4.7 billion last December), among other firms.