New Private-Equity Fund Targets Deals In China

From The Wall Street Journal, Feb 4 2008.

By RICK CAREW
February 4, 2008; Page C3

HONG KONG — Two senior Goldman Sachs Group Inc. bankers are teaming up to run a new $2 billion private-equity fund aimed at landing big deals in China.

Richard Ong, Goldman’s co-head of investment banking in Asia excluding Japan, who is leaving the Wall Street firm in March, plans to work with Goldman’s China partner, Fang Fenglei, on the new venture, called the Hopu Fund, according to people familiar with the situation. Both bankers are keeping close ties to Goldman, and the investment bank is planning to put around $300 million of its own money into the fund.

The birth of a cluster of competitive private-equity firms run by China deal makers highlights the optimism about private equity’s prospects in China. Those firms, including Mr. Fang’s, hope to compete with the likes of Carlyle Group and TPG, which have dominated private equity in China. These deal makers smell new opportunities in China to pair up with Chinese companies going abroad and to forge deals at home as Beijing builds a framework for a domestic private-equity industry.

Reflecting the optimism over China opportunities, the Hopu Fund is attracting attention from investors and has received interest from limited partners far exceeding its planned size of just over $2 billion, according to people familiar with the situation. Singapore state-owned investment company Temasek Holdings Pte. Ltd. is anchoring the fund with a commitment of around $1 billion.

Mr. Ong, who grew up in Malaysia, spent 15 years at Goldman Sachs and led the Wall Street firm’s Singapore office before moving to Beijing in October 2006. Mr. Ong will hold an advisory role with Goldman once he leaves the firm.

Mr. Ong’s brother, Charles Ong, has also risen to prominence in financial circles, working as an investment banker in the U.S. before becoming senior managing director and chief strategist at Temasek.

Mr. Fang earned his reputation by arranging pioneering initial public offerings by Chinese state-owned firms at China International Capital Corp., a joint-venture investment bank formed by China Construction Bank Corp. and Morgan Stanley in the 1990s. He left that venture and worked for other joint-venture investment banks in China. In late 2004, he helped Goldman Sachs pull off a coup by joining with the firm to set up a domestic joint-venture securities firm in China. Mr. Fang remains chairman of that joint venture and retains a stake in it. He has stepped back from day-to-day work at the venture.

The 42-year-old Mr. Ong is the latest deal maker to leave a top Asian operation to strike out on his own. Frank Tang, a former senior managing director for China investments at Temasek, left last year to create his own private-equity fund.

Mr. Ong won’t be involved in a separate domestic yuan-denominated fund Mr. Fang is setting up in the eastern Chinese city of Suzhou. That fund, to be called the China-Singapore High-Tech Industrial Investment Fund, is initially raising five billion yuan, or about $700 million, and will be 50%-owned by an entity controlled by Mr. Fang and 50%-owned by Suzhou Ventures Group.

In Western markets, private-equity companies raise money from big investors and use the cash to take over, change and resell companies. In China and many other parts of Asia, governments limit global private-equity firms to minority stakes, expecting them to add expertise without having control.

Write to Rick Carew at rick.carew@dowjones.com