UPDATE 1-Ex-Temasek exec Tang's Fountainvest raises $1.35 bln in 2nd buyout fund

Tue Nov 13, 2012 11:34pm EST

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By Stephen Aldred

HONG KONG, Nov 14 (Reuters) - China-focused private equity firm Fountainvest Partners, headed by ex-Temasek executive Frank Tang, has raised $1.35 billion in its second fund, the company said on Wednesday, defying tight fundraising conditions in Asia.

Founded in 2007 by four former Temasek executives from the Singapore state investor's China team, Fountainvest's new fund is about 40 percent bigger than its $950 million debut fund in 2008.

Since then, the fundraising climate in Asia has deteriorated as pension funds and endowments have been disappointed with returns from the last batch of funds they seeded in the region, making them cautious about putting money into new funds.

Still, Fountainvest was able to raise the new funds in a relatively quick eight months, a source familiar with the matter told Reuters.

There are now more than 5,000 private equity funds in China, with $261 billion of capital raised and $126 billion invested since 2006, according to a Deutsche Boerse report released this month.

CEO Tang said the current economic slowdown in China presents opportunities for Fountainvest to build companies that will benefit from China's growth and structural changes.

The new fund, Fountainvest China Growth Capital Fund II LP, will invest in high-growth businesses that need between $50-200 million of equity.

Fountainvest used its debut fund to invest in U.S.-listed Sina Corp and Zhaoheng Hydropower Co.

The firm is currently involved in buyout deals of two U.S.-listed Chinese firms - a $3.5 billion bid for display advertising firm Focus Media Holding Ltd and a $635 million offer for budget hotel chain 7 Days Group Holdings Ltd .

Several high-profile funds, including, Washington State Investment Board, San Diego County Employees Retirement Association, Temasek Holdings, California State Teachers' Retirement System, and Canada Pension Plan Investment Board, have invested in the new fund, the source said.

The firm is expected to pour more of its money into buyouts compared to the debut fund, as slowing capital markets and new regulations encourage private equity to accelerate the use of M&A in China.