Warburg Pincus raising $439 million in maiden yuan fund for China investments

Warburg Pincus is raising 3 billion yuan ($439 million) in its first yuan-denominated fund, according to two people familiar with the matter, joining a growing list of private equity investors looking for local currency investment opportunities in China.

China's regulatory crackdown on private enterprises, including those in the technology sector, strict COVID-19 lockdowns, and Sino-US tensions have made many US investors wary of deploying new capital in China, according to several investors and lawyers.

According to people familiar with the situation, Warburg has approached a number of Chinese investors for the new yuan fund, including local government-backed entities and state-backed financial institutions.

The U.S. private equity (PE) firm plans to primarily focus on the healthcare and industrial technology sectors in China with the yuan fund, one of the people said.

Because the information is private, both people declined to be identified.

Warburg would not comment.

Some investors believe that investing in and exiting a local portfolio with yuan-denominated funds would be easier in the current macroeconomic environment.

"Due to volatility in the US dollar market, there is uncertainty in whether Chinese companies can go public in the US," said Mingchen Xia, managing director and co-head of Asia investments at asset management and private investment firm Hamilton Lane.

"RMB (yuan) funds are relatively self-sufficient and self-sustaining," he said. "The more important reason is geopolitics. RMB funds are welcomed by Chinese companies, particularly in sectors such as semiconductors, high technology, and national security."

Hamilton Lane opened its Shanghai office last week, following the completion of a yuan-denominated secondary fund for private markets via China's Qualified Foreign Limited Partner (QFLP) structure.

The QFLP structure allows foreign investors to convert U.S. dollars to yuan for investments in China.

Fundraising in yuan, however, has its own challenges because it can be costly and require a different set of skills from fund managers who are more used to dealing with U.S. dollar investors, lawyers and investors said.