Funds & Investors – January 2009

From one to 100 LPs in five years * GBS holds second close on fourth fund * Accel India venture fund closes on $60m * Birla makes PE entry * UBS sees growth in the Middle East * Asia Alternatives: no need to change strategy * Starfish Ventures falls short * Softbank China sets up RMB fund * Endeavour seeks $300m for venture fund * Chinese bank to launch healthcare fund * Macquarie to launch A$1bn infrastructure FoF * Darby's India retail fund raises $147m

 From one to 100 LPs in five years
In 2004, Actis spun out of CDC, an investment platform owned by the British government, to become an independent fund manager specialising in emerging markets. Immediately after the spin-out, it had one investing client – CDC. On its to-do list at the time, unsurprisingly, was the task of diversifying the funding base.

Fast forward to the present, and Actis has managed to diversify nicely. In December, the firm closed Actis Emerging Markets 3 (AEM 3) on $2.9 billion – and welcomed exactly 100 institutions into the partnership. CDC is once again the largest investor in the fund, with a $650 million commitment. Alongside it, there are 99 other limited partners from across the globe.

Actis had started to fundraise in September 2007 with a target of $2.5 billion and a hard cap of $3 billion. Jonathon Bond, partner in charge of investor relations, described the fund as “ideally sized” and the timing of the fundraising as helpful. Helix Associates, a subsidiary of Jefferies Group, acted as placement agent.

Actis will use the fund to continue its investment strategy in global emerging markets. At the beginning of December, the fund was 12 percent invested and 15 percent committed in eight transactions. These included the $700 million buyout of power equipment maker Alstom in South Africa; a $50 million investment in a Chinese hot pot chain; and a $15 million investment in a copper and cobalt exploration company in the Democratic Republic of the Congo.

Alistair Mackintosh, chief investment officer, said Actis was well positioned to invest the bulk of the fund in 2009 and 2010. “We’re investing in markets that are still forecast to grow between 2 and 7 percent next year. Entrepreneurs will need capital, and they won’t be able to access the public markets.”

Mackintosh also said that Actis would continue to limit its use of leverage to control investments in South Africa and Southeast Asia. “Elsewhere our returns are delivered by organic growth. We don’t need leverage to create returns. What we do need is cash flow we can re-invest in the businesses to help create growth.”

Using a network of 13 offices in 11 countries, Actis invests in Asia, Africa and Latin America. In addition to private equity, the firm is also active in infrastructure and real estate. To date, the firm has raised $7.6 billion of equity. AEM 2 closed in 2004 on $1.4 billion.

GBS holds second close on fourth fund
Life sciences- and medical technologyfocused GBS Venture Partners has held a second close of GBS BioVenture IV on slightly more than A$100 million ($61 million). The fund is targeting A$200 million to invest in companies based in Australia and New Zealand, or in US-based companies with significant Australasian operations or technologies.

Investors in the fund include Victorian Funds Management Corporation, ARIA, Meat Industry Employees’ Superannuation Fund, Macquarie Group, Quay Partners and Industry Funds Management. To date, it has made three investments: Nuon Therapeutics, which is developing therapies in inflammation and neurological diseases; Elastagen, which is involved in R&D to isolate and manipulate recombinant human tropoelastin, and Peplin, which is developing a gel to treat sun spots.

GBS Bio Ventures III, the firm’s previous fund, raised A$150 million and has been fully invested in 13 deals after an investment period of two and a half years. Established in 2002, GBS has A$400 million in assets under management.

Accel India venture fund closes on $60m
India-focused Accel India Ventures has raised $60 million for a venture fund. The fund will make seed and early-stage investments in high-growth sectors such as technology, technology-enabled services, internet, media, mobile, life sciences, consumer products and services.

Accel India was formed earlier in the year when India’s Erasmic Venture Fund andAccel Partners teamed up to launch the Accel India Venture Fund. At the time, the partners of Erasmic Venture became partners at Accel India.

Post-unification, Accel India continues to handle Erasmic’s portfolio of investments which includes HolidayIQ, a travel and holiday information portal; Kaati Zone, a chain of Indian quick service restaurants; Kirusa, which provides value-added mobile services; and Perfint, a healthcare devices startup, among others.

Birla makes PE entry
India’s private equity landscape is witnessing a new phenomenon – that of large conglomerates entering the private equity business and launching their own funds.

Aditya Birla Group is a prime example. One of India’s largest diversified conglomerates, Birla has launched a $350 million private equity fund.

Even with murmurs of limited partners not being able to answer capital calls and a slowdown in fundraising globally, Bharat Banka, the managing director and chief executive officer of Birla’s private equity group, is bullish about the new initiative’s prospects.

Banka, until recently the president and head of corporate finance at the Aditya Birla Group, is confident about a successful fundraise. The firm wants to raise between $200 million and $250 million and has set a hard cap of $350 million. It already has “soft commitments” of about $100 million, said Banka.

The firm’s first offering will be sector-agnostic, though it will focus largely on infrastructure enablers, consumer-facing businesses and manufacturing ancillaries. The Aditya Birla Private Equity Fund I will also focus on certain niche areas such as logistics, education, healthcare and media and entertainment.

The fund’s average investment size will be $20 million to $25 million, going up to a maximum of $50 million.

The firm has already made investments on behalf of the Birla family office, including an investment in the Bombay Stock Exchange and the acquisition of a 26 percent stake in retail chain V-Mart. “These investments have been warehoused for the fund and as this fund is being formally launched, the Birla family office will also become an LP in it,” Banka said.

Several members of Birla’s investment have private equity experience, including director of investments Rahul Shah, formerly at Mumbai-based private equity firm IL&FS Investment Managers; Shamik Moitra, who has worked at Europa Partners in the UK; and Achin Bhardwaj, who has spent four years at Indian growth capital specialist ChrysCapital.

In due course, the firm will also enter the infrastructure space and launch a separate fund focused on the sector. “We have been in industrial manufacturing and natural resources for a long time and understand the area well,” said Banka, adding that the firm is working out the specifics of the offering.

At the time of going to press, Birla was in the process of registering the fund with the Securities and Exchange Board of India.

UBS sees growth in the Middle East
UBS Global Asset Management is making a foray into the private equity asset class with plans to launch funds targeting specific markets, largely in the emerging economies. The firm has entered into a joint venture with Middle East investment firm MerchantBridge to raise its maiden private equity fund focused on the region.

MerchantBridge-UBS Private Equity has launched a $500 million private equity fund to invest in oil and gas, financial services, telecom and light and medium industries. “These are areas where we see opportunities, good growth and fragmentation in the market,” Steve Jacobs, global head of infrastructure and private equity at UBS Global Asset Management, told PEI Asia.

The debut fund has commitments of $40 million from each of its sponsors. Fundraising will begin in January 2009, and the fund will see a first close at the end of the first quarter and a final close by the end of 2009, Jacobs said.

Asia Alternatives: no need to change strategy
At a time when most fund managers and industry practitioners are complaining about the paucity of capital and the difficulty in raising new funds, Asia Alternatives has garnered almost $1 billion fromsome of themost high-profile limited partners in the industry.

Asia Alternatives Capital Partners II, which is nearly double the size of its $515 million predecessor, will commit capital across strategies and asset classes primarily in Greater China, India, Japan and Korea, and will also consider opportunities in Australia, New Zealand and SoutheastAsia.

The fund is already 25 percent committed and has invested in MBK Partners II and Hony Fund 2008, a $2 billion China-focused fund.

Melissa Ma, co-founder and managing director of Asia Alternatives, said Asian private equity had been somewhat protected fromthemeltdown in the global creditmarkets asmanyAsian deals do not contain high levels of leverage.

The firm will not change its investment strategy owing to the change in global financial environment. SaidMa: “TheAsian economy is still strong. We’re doing quite well;we have no need at this point to deviate from our strategy”.

The firm said that most of the $950 million raised for Asia Alternatives Capital Partners II came from existing investors in the first fund.

LPs in the new vehicle include California Public Employees’ Retirement System, which committed $200 million;NewYork State Common Retirement Fund, which committed $50 million; the California Institute of Technology; Ontario Employees Retirement System; Pennsylvania State Employees’ Retirement System;OHIMAsia Investors, an affiliate of Oak Hill Investment Management;Warren Hellman, the founder of San Francisco-based private equity firm Hellman & Friedman; and venture capitalistArthur Rock.

Asia Alternatives is currently invested in funds managed by general partners including CDH Investments, Capital Today, Clearwater Capital, MBK Partners, Hony Capital, Nexus Capital, SAIF Partners and NEA-IndoUS.

C. P. Eaton Partners was the placement agent for the firm while PillsburyWinthrop Shaw Pittman served as legal counsel.

Headquartered in Hong Kong, Asia Alternatives also has offices in Beijing and San Francisco. It has a team of 19 professionals. Besides Ma, who is a former director of Hellman & Friedman, other co-founders include former PacificVenture Partners director LaureWang and Rebecca Xu, who was a senior Asia investment officer at International Finance Corporation.

Starfish Ventures falls short
Australian venture capital firm Starfish Ventures has closed its second technology fund on A$185 million ($119 million), A$15 million short of its target. Due to the “market turning quite a bit in the last couple of months”, the firm has not raised the $A200 million it set out to, although it is pleased with the final amount raised, Michael Panaccio, an investment principal and one of the founders of Starfish Ventures, told PEI Asia.

Starfish Technology Fund II will target information and communication technology, life sciences and cleantech companies, and will invest an average of about A$10 million in each company over the various stages of financing. The firm has already made seven investments from the fund, the most recent disclosed deal being an investment in Ausra, which provides large-scale solar thermal energy systems.

Softbank China sets up RMB fund
China-focused Softbank China Venture Capital is reportedly working with an investment armof the Shanghai city government to launch its first RMB-denominated fund, with a target of RMB2 billion ($293 million).

The firmaims to finish fundraising by early next year and is mainly seeking commitments from Chinese limited partners, according to a report in Reuters. City government-owned Shanghai Pudong Science and Technology Investment Company is expected to be a major limited partner in the fund.

The fund will invest in China’s fastgrowing high technology sectors, particularly in Shanghai’s Pudong New Area. As authorities have relaxed regulations pertaining to the creation of RMB-denominated funds, such vehicles are becoming more popular.

Endeavour seeks $300m for venture fund
New Zealand-based Endeavour Capital is raising a venture fund targeting $300 million, which will make investments in clean technology, life sciences, information and communications, Neville Jordan, executive chairman of Endeavour Capital, told PEI Asia.

Launched in August, the Endeavour Growth Fund expects a first close in the first quarter of 2009 and a final close in the third quarter. In the fund’s maiden deal, it will invest $50 million into a partnership with Hubei-based Wuhan Huagong Venture Capital of China, which will contribute the same amount. In turn, the partnership will invest in cleantech, life sciences and information and communication companies in New Zealand andWuhan.

Founded in 1999, Endeavour Capital invests in companies which are based on science and technological innovations. It has made deals across sectors such as biotechnology, software and medicine.

Chinese bank to launch healthcare fund
Hong Kong-based CCB International, the investment arm of Chinese commercial bank China Construction Bank, intends to launch a healthcare fund, a bank spokeswoman told PEI Asia.

The RMB5 billion ($732 million) fund will be the first vehicle in China to focus on the healthcare industry. It will capitalise on China’s growing healthcare industry and target pharmacy, medical equipment manufacturing, medical institutions and services, Hu Zhanghong, CCB International’s chief executive, told Xinhua News.

The fund aims to relieve the health inequality between China’s urban and rural populations, which has resulted fromChina’s economic boom. China Construction Bank is a joint-stock commercial bank with about 13,629 domestic branches as well as overseas branches in Hong Kong, Singapore, Frankfurt, Johannesburg, Tokyo and Seoul.

The Middle East-focused fund will make growth capital and buyout investments and is targeting an IRR of 25 percent or more, he said. Its average deal size will be between $30 million and $50 million, though it will make a couple of larger anchor investments potentially running into as much as $100 million.

“We decided to launch this fund as our international client base is telling us that the Middle East is interesting, it has good growth, and the market has improved in terms of its regulatory environment as well,” said Jacobs. He added: “Furthermore, by any estimate, the region has about $2 trillion to $2.5 trillion of oil-generated revenues over the next five years, a large chunk of which is likely to be invested in the region – that, too, creates an investment environment that is attractive.”

According to Ben Heap, executive director of infrastructure asset management at UBS, private equity was the only alternative asset class in which the firm was currently not active. “Having grown into infrastructure, which is all about closed-end specialist funds, private equity was a natural adjunct from that,” he added.

The bank is also in talks to develop other private equity funds, largely in the emerging markets, particularly in China, India, Latin America and possibly Eastern Europe.

For infrastructure, the firm has entered into a partnership with Abu Dhabi Investment Company to launch a private equity-style infrastructure fund focused on sectors such as power, water and transport. That fund is raising $500 million as well.

UBS closed a $1.5 billion infrastructure fund in November focused on member countries of the Organisation for Economic Cooperation and Development (OECD).

Macquarie to launch A$1bn infrastructure FoF
Infrastructure giant Macquarie Group intends to raise an A$1 billion ($700 million) infrastructure-focused fund of funds. The global vehicle may start committing capital in the middle of next year, a person familiar with the situation told sister publication

The fund will be based in Sydney and will be headed by Macquarie division director Peter Johnston. Currently, Johnston’s team is looking at prospective funds to invest in and preparing to start fundraising. Initial indications are that the fund will favour investments in smallersized infrastructure funds and will likely be weighted more towards Europe over the US, the source said. Also, the fund will likely limit investment in its own infrastructure funds to around 20 percent.

The fund will effectively put the weight of Macquarie, the largest private owner and operator of infrastructure assets globally, behind a growing list of alternative asset managers raising infrastructure private partnerships.

Darby’s India retail fund raises $147m
Darby Overseas Investments, the private equity arm of Franklin Templeton, has raised a $147 million fund targeting the Indian retail market. Franklin Templeton Private Equity Strategy is a closed-end, rupee-denominated fund that will be advised by Darby’s India affiliate, Darby Asia Investors. Darby will work with Franklin Templeton to invest in high growth, mid-sized unlisted companies throughout India, according to a statement from the firm.

“Despite the expected moderation, the Indian economy will continue to be one of the fastest growing economies in the world and the rising demand for private equity capital will help this product to capture the growth potential in an effective way,” said Vivek Kudva, president of Franklin Templeton India. Founded in 1994 by former US Treasury Secretary Nicholas Brady, Darby became a fully owned subsidiary of Franklin in 2003.