Private equity firms traditionally make investments using 10-year funds, and sell them after three to five years. Any gains made are returned to investors in the fund. But Internet companies such as Alibaba Group Holding Ltd, Baidu Inc and Tencent Holdings Ltd continued to grow strongly long after private equity firms sold their stakes. These features put many private equity firms’ return on hold. According to Reuters, Hong Kong-based Capital Today which has made huge profits off investments in China’s technology sector is launching a fund unprecedented in the country for its ultra-long horizon.
A term sheet seen by Reuters on June 6th, Capital Today, as an early investor in e-commerce company JD.com Inc and helmed by one of China’s top dealmakers, aims to raise a $400 million “evergreen” fund. “With evergreen funding, […] investors supply the capital in incremental payments throughtout the development phase of the company or product. Thus, the company receives money from its investors as the need for funds arises, and alike the evergreen tree, is never without the ‘green’ the company needs to survive”, quotes from Online dictionary Investopedia.
Therefore, Reuters reports that
[a]n evergreen fund would allow Capital Today to hold stakes in emerging Chinese companies for far longer than is usual, enabling the firm to share in future profits, according to an investor familiar with plans for the new fund. The new fund, Capital Today Evergreen Fund, will charge a regular 2 percent management fee, but will have a 28-year life, according to the term sheet. That is likely to appeal to investors who are comfortable investing over a long period, such as U.S. endowment funds or family offices. […] Evergreen funds are highly unusual in private equity. With evergreen funds, private equity firms are not pressured to sell assets – sometimes at a discount – to meet the demands of a shorter investment period, and do not have to regularly raise new capital since the fund can be topped up from the sale of assets.
When Chinese crowd are happy for Chinese e-commerce platform JD.com debuted on the Nasdaq, as an early investor behind the scene, Kathy Xu, the Capital Today founder and former Baring Private Equity senior executive, aims in the long run. With woman’s special sense and years of experiences, she puts $17 million into JD.com, then known as 360buy, over 2007 and 2008 from the Capital Today China Growth Fund L.P., according to Thomson Reuters data. That made Capital Today the first institutional stakeholder of JD.com, which recently raised $1.78 billion in the U.S. listing.
Is it the new trend for private equity field, only time could tell.
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