Lord Rothschild launched a $750 million private equity fund for Chinese investors yesterday in a move that marks a milestone in Beijing’s accelerating plans to internationalise the yuan.
The fund, which is the first to allow Chinese companies to dip their toes into international stake-building via private equity, is designed to tap an investment appetite that is increasingly looking outside China to give companies a technical or marketing edge back in the cut-throat domestic market.
Against a background of recent economic reforms, the ground-breaking fund was granted permission to launch after only a few months of negotiations with the Chinese authorities. That was a signal not only of their eagerness to increase the choice of sophisticated yuan-denominated financial products in the market but also the disproportionate strength of the Rothschild brand in China.
Its reputation, according to rival banking figures, may have as much to do with the famous wine that bears the Rothschild family name as the company’s track record. As the Chinese economy has boomed, Château Mouton Rothschild has emerged as the undisputed social currency of big deal-making.
In a business culture that rewards lavish displays of opulence — and often depends heavily on treating a senior Communist Party official with visible largesse — the emergence of a decent vintage of Mouton Rothschild can prove the decisive stroke. The brand still works wonders, say wine merchants, even though a good percentage of what sells for $2,000 a bottle in China is thought to be fake.
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Lord Rothschild used to work at NM Rothschild and was a co-founder of J Rothschild Assurance, now known as St James’s Place, with Sir Mark Weinberg.
The primary purpose of the new Rothschild fund is to allow Chinese investors to buy stakes in Western companies through a non-Chinese private equity vehicle, something they have not been able to do in the past. It is now expected to attract substantial interest as businesses look outside the country for the technology and expertise they need to grow.
The fund, described as following an “opportunistic” investment strategy, is likely to concentrate its acquisitive attentions on a range of sectors, including green technology, luxury goods and natural resources. In keeping with the relatively conservative nature of the fund — and the known anxiety of Beijing as new financial products are launched — the fund’s investments are intended to be non-leveraged minority stakes.
“This is the first time that the Chinese Government has allowed something like this to happen and there is an extent to which they are testing the temperature of the bath water,” Lord Rothschild told The Times.
The fund will draw about $100 million of initial capital from Lord Rothschild’s existing private equity group RIT Capital Partners and the domestic Chinese investor Creat Group. The remaining $650 million on his wish list is expected to flow in from Chinese companies and to have hit the $750 million total by midsummer.
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A variety of technical hurdles, prominently including the still non-internationalised nature of the Chinese currency, have prevented medium-sized, private sector Chinese companies venturing into overseas deals with the speed they would almost certainly like.
The Government’s decision is the latest in a string of similar moves that have allowed Western financial enterprises to generate products whose activities will further the spread of the yuan throughout international finance.
“Banks have been eager to get involved in cross-border trade; their early participation effectively helped launch a global clearing system for the renminbi [yuan] within a matter of months,” Qu Hongbin HSBC’s China economist, wrote in a recent note.
“Supported at the highest political levels, this catalytic mix of drivers means that the acceleration and contours of the renminbi internationalisation process will be faster and more varied than many expect.”