SHK Fund eyes onshore China PE fund

HONG KONG (Reuters) - SHK Fund Management is in talks with a mainland Chinese financial firm about teaming up to launch an onshore private equity fund to finance capital-hungry companies.

The fund would likely be at least $50-$100 million in size and positioned to do deals with Chinese companies caught out by the global credit crunch, SHK Fund Management Chief Executive Christophe Lee said on Tuesday.

"There is a big mismatch between how you can get your hands on some funding in China as a private entrepreneur, and the system that provides it.

"There's always going to be an oversupply of people that have growing businesses," he told the Reuters Hedge Funds and Private Equity Summit in Hong Kong.

"I think (homegrown) private equity as a sector will just completely take off in China in the next few years."

The unit of financial group Sun Hung Kai & Co Ltd (0086.HK) has about $900 million in assets under management. This includes its existing $100 million SHK Asian Opportunities private equity fund.

A growing number of foreign private equity firms frustrated by red tape in their efforts to buy Chinese companies are setting up funds onshore.

Traditionally, private equity funds and Chinese entrepreneurs transferred ownership of companies offshore, with many seeking listings abroad. But China has gradually been plugging that exit route with regulation.

Lee, who declined to name the Chinese firm he was in talks with, said setting up an onshore fund could help it compete.

"As a group we have a long history of operating in China. I think that's our edge. If I look at where I think we can beat some of our global competitors, and they're tough competitors, I think it's in places like China," he said.

VIETNAM AS WELL

Vietnam is another market were SHK Fund Management hopes to step up activity. Lee said the firm was in talks with a "substantial" Vietnamese financial institution about setting up a Hong Kong-based company that would help global investors access Vietnam.

SHK Fund Management is also looking at opportunities tied to the Middle East after Dubai Investment Group last year took a 9.88 percent stake in its parent company.

Lee said he is looking to add a Middle East and North Africa-focused vehicle to its lineup of SHK-sponsored global hedge funds. This business, which accounts for about $650 million in assets, places cash raised from SHK's Hong Kong clients with international hedge fund managers.

The former executive director with Goldman Sachs Asia said he was also looking to expand its in-house Asian hedge fund unit by adding two to three new funds by year-end that would manage at least $20 million each.

The business currently has two funds managing about $150 million, but Lee said he would like to add new talent and expand the number of trading strategies on offer.

Current tough markets are likely to help it recruit talented managers for the division, he said.

"With the market downturn, it's becoming easier to hire people again. Probably the biggest bottleneck to growth generally in the financial services industry last year ... was getting the people," he said.

"If there is a silver lining to this episode, it's that."

(For a summit blog: summitnotebook.reuters.com/)

(Reporting by Jeffrey Hodgson; editing by Kim Coghill and Jason Neely)