Hillhouse targets new renminbi fund as dollar interest in China dries up

Receive free Hillhouse Capital Management Ltd updates

We’ll send you a myFT Daily Digest email rounding up the latest Hillhouse Capital Management Ltd news every morning.

Hillhouse Capital is seeking investors inside China to back a new renminbi fund, as the leading private equity group adjusts to a decline in dollar funding caused by increasing geopolitical tensions between Washington and Beijing.

The Chinese investment group’s fund is likely to focus on backing companies in the healthcare sectors, according to two people close to the process. The fundraising is still in its early stages, with a target of more than Rmb10bn ($1.4bn) and the final figure dependent on market conditions, they said.

The move highlights a pivot in strategy by Hillhouse, which was started in 2005 with a $20mn investment from the endowment at Yale University, where its founder Zhang Lei had studied.

Hillhouse built its reputation and grew into a $65bn operation by channelling foreign capital into China’s hottest companies, including Tencent and TikTok owner ByteDance. Its China unit later began raising separate renminbi funds.

The change in emphasis comes as foreign institutional investors retreat from multiyear China commitments and Washington adds investment restrictions to deals in the country. The group has “optimised” its China team, according to a person familiar with the matter, while trying to hire talent in Singapore and Europe for expansion outside China, the two other people said.

Data from research provider Preqin shows China-focused private equity and venture capital funds raised just $8bn in the first half of this year to put to work in the country, down from $103bn in the same period of 2021.

“Last year was hard, but this year is even worse,” said one venture capitalist based in the country who asked not to be named. “Basically all of the US [limited partners] have closed their doors on China funds. Everyone is going to the Middle East to raise money, but most people are coming back empty-handed.”

Hillhouse’s repositioning follows that of other big Chinese investment groups. Sequoia China is separating from its Silicon Valley counterpart and rebranding as HongShan. The firm registered a new renminbi fund in Hangzhou last year and is working to raise roughly Rmb20bn from investors including local governments, according to one person close to the group.

Hillhouse has also been in talks with state groups, including the Jiangxi provincial government, one person briefed on the matter said.

In July, Jiangxi’s State-owned Capital Operation Holding Group, an investment arm of the local government, said its Communist party chief Jiang Shangwen had held talks with a Hillhouse delegation led by Zhang on “fund co-operation and industrial development”.

A person familiar with the matter said this was a courtesy visit made to promote economic development for the group’s portfolio companies in the region.

The people familiar with Hillhouse’s latest renminbi fund said the fundraising process was not going as smoothly as expected. One of the people said the group had earlier hoped to raise as much as Rmb12bn-Rmb16bn.

Hillhouse’s previous renminbi funds raised about Rmb30bn in total, with half of the last one invested in healthcare, one person said.

Hillhouse declined to comment on its plans.