* New fund expected to concentrate on acquisitions
* Slowing capital markets, new regs use of M&A in China
* Companies "can consolidate or be consolidated"-Tang
HONG KONG, Nov 14 Hong Kong-based private equity firm Fountainvest Partners, headed by ex-Temasek executive Frank Tang, has raised $1.35 billion for its second fund focused on Greater China, sources familiar with the matter said, defying increasingly tight fundraising conditions.
Founded in 2007 by four former Temasek executives from the Singapore state investor's China team, Fountainvest raised a debut fund of $950 million 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, one of the sources said.
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.
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 invested in U.S.-listed Sina Corp and Zhaoheng Hydropower Co among others from the first fund.
Fountainvest officials declined to comment. The sources declined to be identified as the information was not public.
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, one of the sources 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.
Managing partner Tang earlier this year told Reuters that a key driver for companies to strike deals is the need to consolidate China's fragmented industries, where top players often take less than five to 10 percent market share.
"I think there's going to be industry consolidation going forward and companies can either consolidate or be consolidated," Tang said.