Goldman/CIC: east-west tensions turn woo to rue

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The investment landscape is littered with once-trendy ideas that — in hindsight — look distinctly less ingenious. Among their number is the Goldman Sachs China-US Industrial Cooperation Partnership Fund. This private equity vehicle was set up in 2017 to funnel money from state-backed investor CIC into western assets. 

An FT report that the fund made five investments that were not disclosed publicly has raised concerns about creeping Chinese influence.

The co-operation fund’s active stance is at odds with changed geopolitical mood music. Western governments are increasingly wary of Chinese investors. One might assume the fund found slim pickings — or was quietly wound down. Not so, it transpires.

Private equity dealings are hardly famed for fulsome disclosure. The fund is managed in compliance with all laws and regulations, Goldman says. 

The acquisition of UK-based LRQA, which owns a ringfenced cyber security business, apparently triggered foreign direct investment approval processes in six countries including the UK. Within this, CIC’s involvement would have been disclosed to the UK government. 

It is unclear which framework the submission to UK authorities occurred under, though. The LRQA transaction occurred in 2021. The UK tightened the screws on Chinese investment via the National Security and Investment Act from January 2022.

Before then, purchasers could voluntarily seek guidance on deals from officials. This was partly because the government gained the ability to review them retrospectively in 2022.

One reason why the LRQA transaction may have avoided close scrutiny is that CIC’s involvement was relatively contained. The Goldman co-operation fund was only a minority investor. Most of the money came from one of Goldman’s big flagship private equity vehicles. CIC does not have board representation or access to corporate information.

Goldman previously wooed the Chinese elite. So did the British government. US-China tensions have ended that. But permanent capital lingers on. Fuller disclosure of what regulatory hoops the fund jumped through would be welcome.