* Highland Capital Management seeks 5 bln yuan in first tranche
* Focused on SE Asian targets serving overseas Chinese demand
* Follows establishment of state-owned yuan offshore fund in 2012
* Hopes to cash in on liberalisation of capital account
SHANGHAI, May 15 (Reuters) - A private Chinese fund management company plans to break new ground by establishing a privately managed offshore yuan fund as a vehicle for investment in Southeast Asia, taking advantage of Beijing's moves to promote use of its currency overseas.
Yunnan-based Highland Capital Management aims to raise 5 billion yuan ($813.96 million) in the first round for a fund focused on investing in companies in Southeast Asia that serve Chinese consumption of overseas tourism services, energy and natural resources.
"This is an extension of China demand and an attempt to connect that demand with funding," Highland's managing partner Daniel Zhou, former director of the investment banking division at UBS, told Reuters.
Sailing Capital Management, run by a unit of the Shanghai Municipal Government, launched a similar fund in Feb. 2012.
Whereas Sailing Capital is state-managed, Highland says it is will be the first privately-managed fund to use the offshore yuan route.
Zhou said that Highland would also help the investment targets attract additional customers for their products and facilitate further financing from mainland sources.
The company will attempt to raise funds from limited partners (LPs) in both the private and state sectors in China, Zhou said, focusing on finding LPs with overseas experience operating in sectors related to the investment targets.
In the initial phase, he said, Highland will exit from its investments in overseas enterprises by on-selling its stakes to other mainland investment funds.
Liu Guangxi, head of the Yunnan Province Financial Office, said in an email that the fund had the "full support" of the People's Bank of China and the provincial government in Yunnan.
Outbound investment using yuan has yet to become economically significant.
Yuan-denominated outbound direct investment by Chinese companies in 2012 totalled 30.44 billion yuan ($4.96 billion), compared to $77.2 billion in total outbound foreign direct investment, according to central bank data.
While Chinese companies have been permitted to use yuan for outward direct investment since 2011, the channel has been under-utilised, thanks largely to a complex regulatory environment that hampers movement of investment funds out of China.
In addition, analysts point out that while foreign companies doing regular trade with China can more easily reuse yuan received in payment, the same does not necessarily hold for companies receiving Chinese investment if they don't ordinarily use yuan for their businesses.
Zhou said the fund would face challenges moving investment funds out of China in a timely manner due to the red-tape.
"You have to coordinate the various agencies, each working on its own timetable and its own priorities," he said. ($1 = 6.1428 Chinese yuan) (Editing by Simon Cameron-Moore)