CIC in €800m offer to Apax

December 3, 2009
Singapore Democrats

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Martin Arnold & Jamil Anderlini
Financial Times

China Investment Corp, China’s sovereign wealth fund, is offering to invest as much as €800m (£723m) into Apax Partners’ €11.2bn private equity fund in a groundbreaking deal.

The move, which would also see CIC acquire a small stake in the management company of one of Europe’s biggest private equity funds, shows China is still eager to invest abroad in spite of being burned in the past.

Two years ago CIC was heavily criticised at home for spending $3bn to acquire 10 per cent of Blackstone, only for shares in the US private equity group to plummet during the credit crisis.

CIC’s deal with Apax is unusual as the London-based private equity group raised €11.2bn two years ago for Apax Europe VII fund – one of the largest buy-out funds in Europe – and has already invested almost half of this.

Apax is offering investors the chance to transfer as much as €800m of unfunded commitments (the part of their investment that is still to be called for future deals) to the Chinese fund, according to a letter sent to investors in Apax Europe VII.

Apax is backed by some of the world’s biggest institutional investors, including the Washington State Investment Board and California State Teachers’ Retirement System in the US, AlpInvest in the Netherlands and GIC in Singapore.

CIC has made the deal conditional on it receiving at least €350m of commitments. Some investors are likely to be attracted by the offer, as the financial crisis has left many over-committed to private equity funds and short of cash. A deal could be signed this week.

The Chinese fund may also buy 2.3 per cent of Apax Partners LLP, the UK private equity group’s management company.

It would join GIC and Future Fund, the Singapore and Australian sovereign wealth funds, which bought 7.7 per cent of Apax this year. The proceeds of the sales would go into a permanent capital vehicle to invest in Apax’s future fundraisings.

Investors in Apax said the deal was the first of its kind and they expected other private equity groups to consider copying it as a way of dealing with cash-strapped investors without shrinking their funds.

Apax Europe VII has made 15 investments, including UK publishing group Emap, Weather Investments, an Italian tele-coms group, and D+S Europe, a German e-commerce company.

The fund has achieved a negative annual return of 38 per cent, according to Calstrs. But investors said it was one of the better performing big buy-out funds, with two deals performing ahead of expectations, nine in line with their targets, and four below plan.

Following investments in Blackstone and Morgan Stanley in 2007, CIC was heavily criticised domestically for making poor investments. It spent most of last year sitting on the sidelines with about 90 per cent of its available funds in cash.

Apax and CIC declined to comment.

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