Value Convergence targets US$100m private equity fund
Value Convergence, the brokerage arm of Lawrence Ho Yau-lung's Melco Group, aims to raise US$100 million for its first private equity fund to invest in leisure and entertainment projects in the mainland and Macau.
The move sought to expand the company's fee-based income because revenue from brokerage was unstable, Value Convergence chief executive Patrick Sun Ting-wah said.
Melco has already contributed US$15 million to the war chest and the brokerage is to raise funds in the second half of this year.
'The equity fund may team up with Melco to invest in projects in Greater China including Macau,' Mr Sun said, adding that Value Convergence would charge a 2 per cent management fee on the fund.
While Value Convergence's main brokerage business was already reeling from fierce competition from e-banking, Mr Sun said it would hire people to look for investment opportunities for the fund.
Mr Sun joined Value Convergence in August last year after working in investment banks including Kingsway Group and JP Morgan.
'We are looking at projects with [an internal rate of return] of at least 20 per cent,' Mr Sun said.
The private equity fund plan was unveiled yesterday after the company announced a 416 per cent jump in net profit for last year to HK$26.3 million, or 10.45 HK cents a share, compared with HK$5.1 million, or 2.05 HK cents, a year ago. Sales rose 57 per cent to HK$116 million.
The earnings surge was fuelled by a HK$11.3 million gain in trading investment, compared with just HK$651,000 a year ago, and a jump in operating profit from margin financing to HK$15 million, up from HK$4.8 million.
Mr Sun admitted trading investment returns this year might be under pressure as the company invested mainly in Hong Kong-listed stocks, which had become increasingly volatile.
Value Convergence last year missed becoming the sponsor of two mainland firms when their plans to go public were delayed.
But Mr Sun said the firm signed deals recently to be the sponsor of two other mainland companies - one a resource and the other an infrastructure firm - when they launched their initial public offerings later this year. 'The offer size is between HK$100 million and HK$200 million each,' he said.
Shares of Value Convergence, which have risen 19.8 per cent in the past year, fell 8 per cent yesterday to HK$1.27 after the earnings announcement.