China's Hillhouse blasts past target to raise $10bn for buyout fund

“heavily oversubscribed” fund will focus on health care, consumer, technology and services industries

Hillhouse's latest fund will look for opportunities in health care among other sectors. Bloomberg

Hillhouse Capital Group, the Chinese investment firm, raised $10.6 billion for its third and largest buyout fund as money pours into the private equity industry from investors seeking higher returns than volatile markets offer.

The fund, the world’s third-largest private equity raising completed this year, will seek opportunities in health care, consumer, technology and services industries, Hillhouse said on Wednesday. The fund was “heavily oversubscribed”, the firm said. Its initial target was about $6bn, sources said earlier this year.

A total of 671 private equity funds have raised $255bn this year, after a record $453bn was collected in 2017, researcher Preqin said in a report this month. The industry is now faced with the challenge of deploying more than $1 trillion in capital when competition for deals is intensifying, pushing prices higher. At the same time, global trade tensions and the end of ultra-easy central bank policy has roiled stock and bond markets, sending investors looking for alternatives.

In the only larger fundraisings this year, Carlyle Group garnered $18.5bn for a US-focused fund targeting aerospace, defense and government services, and Swedish buyout firm EQT Partners collected more than $13bn. That means the Hillhouse fund is the largest Asia-focused pool that has completed raising capital this year.

Hillhouse was founded in 2005 by Yale University alumnus Zhang Lei with an initial $20 million from his alma mater’s endowment fund. He has parlayed that into the more than $50bn in assets the firm manages today.

For the new fund, Canada Pension Plan Investment Board committed $300m as of March, according to its website. San Francisco Employees’ Retirement System pledged $100m, and Texas County & District Retirement System contributed $85m.

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“We are deeply grateful for the ongoing trust of our partners,” Mr Zhang said. “We look forward to working with innovation-minded, world-class businesses and management teams seeking to deploy technology-driven solutions to create value for all stakeholders.”

The new fund has the flexibility to invest globally, but will focus on Asia-related deals. It will invest in startups and help traditional companies get back on the growth track through digitalization, the statement said.

Hillhouse participated in more private equity purchases in Asia Pacific last year than any other investment firm, racking up $26bn of transactions, according to data compiled by Bloomberg.

An investor group including Hillhouse and Hopu Investment Management agreed last year to buy Singapore-based warehouse operator Global Logistic Properties for about $12bn. That deal surpassed the 2016 takeover of Qihoo 360 Technology as the largest-ever buyout of an Asian company, Bloomberg data show.

Hillhouse teamed up with CDH Investments in 2017’s $6.8bn buyout of Belle International, the biggest women’s footwear retailer in China. It was also an early investor in Chinese cancer drug developer BeiGene, now worth $9.5bn, and electric-vehicle maker NIO, which is valued at $7.9bn.

The firm was also an early backer of Tencent Holdings Ltd., the Shenzhen-based internet giant that operates the ubiquitous WeChat messaging service, and Chinese e-commerce operator JD.com.

Hillhouse’s investments outside Asia include cloud commerce platform Magento, Uber Technologies Inc. and video-conferencing outfit Zoom Video Communications Inc.

The investment firm has been beefing up its executive ranks recently, with Mervyn Chow, who was Credit Suisse Group’s most senior China banker, joining in a high-level senior role in March.