China Merchants Group has teamed up with a London-based firm to launch a new Rmb100bn ($15bn) technology investment fund with aim of becoming China’s answer to the near-$100bn Vision Fund created by Japan’s SoftBank. The state-owned conglomerate, along with other unnamed Chinese groups, has pledged to invest up to Rmb40bn of the fund, in what would be a huge pool of capital primarily designed to target investments in Chinese technology companies. The “China New Era Technology Fund” will also look at deals globally, a move that may draw scrutiny from Western governments, which have becoming increasingly concerned and outspoken about Chinese dealmaking in their technology sectors.
CMG is set to announce the plans with the UK’s Centricus, the investment firm that helped structure SoftBank’s record-setting technology fund, and SPF Group, a small Beijing-based fund manager that counts Joshua Fink, the son of BlackRock founder Larry Fink, as one of its partners. Centricus and SPF Group will be responsible for raising the remaining the Rmb60bn from governments, universities and other technology companies. Centricus is led by former Deutsche Bank executive Nizar Al-Bassam and former Goldman Sachs partner Dalinc Ariburnu, who have close links to Gulf sovereign wealth funds and helped SoftBank secure $60bn in commitments from the state funds of Saudi Arabia and Abu Dhabi.
The new fund comes as global investors are racing to assemble ever larger pools of money to compete with SoftBank’s massive fund, which has upended the traditional venture capital-backed approach to technology investing by deploying huge amounts into start-ups. Mr Ariburnu said: “The technology revolution is taking place much faster than expected and this is creating a big race for investments in this space. We are at a stage where the size of available funds and the ability to access big markets will be the game changer.”
Last week, the FT reported that Sequoia Capital had raised the first $6bn of what will be an $8bn global fund as the Silicon Valley venture capital firm seeks more firepower to compete with SoftBank. CMG has become increasingly focused on tech investments in the past years and it recently gained approval from Beijing for a group subsidiary, China Merchants Fund, to set up one of six funds to participate in tech IPOs as cornerstone investors. The group’s financial arm is active in the Chinese tech sector, recently securing a role as one of the seven cornerstone investors for Xiaomi’s IPO in Hong Kong. This race to raise money among funds has fuelled concerns that technology sector valuations are becoming inflated, especially since many of the investment targets are lossmaking.
An affiliate of CMG and a new joint venture formed between Centricus and SPF Group will manage the fund. China Merchants Group is one of the country’s largest state-owned enterprise with total assets of $1.1tn at the end of last year, according to the company’s website. It took in about $88bn in revenues in 2017. Chinese state-controlled groups over the past two years have launched a number of massive funds aimed at investing in technology.
In 2016, the Chinese government launched a $30bn venture capital fund aimed at upgrading technology in the country’s ailing industrial sector. The government funds have largely focused on investments in China but some, such as China Reform Holdings, often seed other funds that go on to target overseas assets. Unlike most state-owned companies in China, Merchants Group is not based in Beijing but outside of mainland China in the Chinese territory of Hong Kong. It traces its history back to a Qing dynasty shipping and transportation organisation founded in 1872, according to its website, although its current operating structure bears little resemblance to that era. Additional reporting by James Kynge.
