Goldman Plans $770M China Fund

Goldman Sachs is planning to raise 5 billion yuans ($770 million) for a private equity fund in China, Reuters reported Thursday. The fund is a joint venture between Goldman and state-owned Capital Opportunities and Management Centre of Beijing, a unit of Beijing’s municipal government, Reuters wrote.

(Reuters) – Goldman Sachs plans to raise up to 5 billion yuan ($770 million) for a private equity fund in China, a source familiar with the matter said on Thursday.

The source added that the Wall Street bank had signed an agreement with the Beijing municipal government, which will be its first investor in the domestic fund.

The Wall Street bank’s CEO, Lloyd Blankfein, and global head of merchant banking, Richard Friedman, signed an agreement in Beijing on Thursday with the city’s mayor, Guo Jinlong, the source said.

News of the fund, a joint venture between Goldman and state-owned Capital Opportunities and Management Centre of Beijing, a unit of Beijing’s municipal government, came on the same day that Morgan Stanley issued an invitation to the launch next week of a yuan private equity fund venture.

Morgan Stanley and Hangzhou Industrial & Commercial Trust Co. plan to hold an opening ceremony next week for their private-equity venture in Hangzhou, according to an e-mailed invitation for the event.

China is encouraging foreign private equity firms to set up and launch yuan funds, hoping to use their international expertise to improve local corporate governance and channel money into the private sector to aid the domestic economy.

Since 2009, international firms including Blackstone Group L.P. , TPG and Carlyle Group have announced plans to launch yuan funds in China through partnerships with local governments or Chinese companies.

Launching yuan funds allows foreign private equity firms to access deals more easily and face less regulatory scrutiny. At the same time, they can raise money from an increasing number of wealthy Chinese seeking high returns.

Previously, institutions such as Goldman and Carlyle invested in Chinese companies through offshore dollar-denominated funds. But investing and exits were often complicated by China’s strict capital controls.

For example, Carlyle’s planned acquisition of Xugong Group Construction Machinery Co, one of China’s biggest machinery makers, was shot down by the government on concerns about foreign monopolies.

“The route to regulatory approval for all transactions is much simpler and faster,” said the source, discussing the advantage of yuan funds over dollar funds.

Goldman declined to comment.

The source declined to be named because the matter has not been disclosed publicly. ($1 = 6.492 yuan) (Reporting by Stephen Aldred and Denny Thomas; Editing by David Chance and Ken Wills)