Blackstone sets up in Shanghai with local fund

The world’s largest buyout firm, Blackstone Group, has set up its first regional renminbi-denominated private equity fund in China.

The new fund management company is planning to raise RMB 5 billion ($730 million) from Chinese investors to develop projects in China, especially around Shanghai and the Yangtze River Delta.

“We see this as the start of a more wide-ranging expansion in China,” chief executive of Blackstone,Stephen Schwarzman, said. “China is a required course, not an elective, for any sensible global financial institution.”

“The U.S. remains the principal focus at the moment… for us today, Asia is the second most interesting [region],” he said, according to the Wall Street Journal.

Chinese sources said the new Blackstone Zhonghua Development Investment Fund has signed an agreement with its first investor, government-backed Lujiazui Finance & Trade Zone Development.

Antony Leung, the former Financial Secretary of the Hong Kong Special Administrative Region, and chairman of Blackstone Greater China operation, said the fundraising was underway in stages.

“Despite the global financial crisis, the rapid growth of the Chinese economy and favourable returns from Chinese enterprises mean that Blackstone’s investments in China would not decelerate,” Leung told Chinese media.

Blackstone real estate group principal Robert Yang said the fund would invest in China nationally but with its priority in and around Shanghai, focusing on alternative energy, environmental and medical companies.

Blackstone is among the first foreign firms to be granted permission to raise renminbi funds as local private equity firms. Others included Prax Capital Management, First Eastern Investments, and CLSA Asia-Pacific Markets. In August, Prax Capital received its licence to operate in Shanghai and was planning to raise RMB 1.5 billion ($219.6 million) in two Chinese currency funds.

Blackstone sold a stake in its management company for $3 billion to the China Investment Corporation ahead of its initial public offering in May 2007. The deal was the first for CIC and came before the fund had been officially established or had a formal name.

Blackstone agreed to pay $600 million for a 20 per cent stake in state-owned chemicals maker China National BlueStar (Group) Corp in September 2007.

Setting up yuan denominated funds on behalf of Chinese investors is expected to ease regulatory requirements for deals because the investments can be treated as domestic. Offshore private-equity funds are subject to some restrictions and need approval in order to make investments in certain sectors.