Clean technology private equity firm Nature Elements Capital has raised US$40 million for a fund but has almost halved its fundraising goal amid tough market conditions.
The Tianjin-based company, founded by Chan Ka-keung, a former renewable energy head of Hong Kong utility CLP Holdings, has cut its target by 43 per cent as investors have turned more risk-averse due to a fall in growth in recent months on concerns that governments have to rein in spending in the United States, Europe and Japan to control runaway sovereign debt.
"This has made fundraising more challenging, but at the same time it makes investing easier as cheap assets abound," Chan told the South China Morning Post.
Chan, a former NatWest Markets and Credit Suisse banker and former head of Greater China investments at British private equity firm Climate Change Capital, said that while the bond-buying spree by the US Federal Reserve had theoretically vastly increased the supply of capital, banks had kept most of the funds and not lent it out due to risk aversion.
This has made funds for private equity investment hard to come by.
Private equity funds typically invest in cash-hungry companies that have difficulty raising money from banks. They then profit by selling their investments to the acquired firms' rivals or through an initial public offering at a later date.
Nature Elements, set up in 2009 to invest in renewable energy, energy efficiency and environmental protection, has closed the first round of fundraising for the company's first US-dollar fund.
Of the US$40 million-plus it raised, US$8 million came from the International Finance Corporation, a private sector arm of the World Bank Group that invests in for-profit projects tackling poverty and promoting development. Some European and Asian investors also chipped in.
The IFC will put a further US$17 million in future rounds of capital raising by Nature Elements' fund.
Still, Chan slashed the target to US$200 million from the planned US$350 million in 2011. He now expects the fundraising to close by the end of the year, instead of the originally targeted mid-2012.
Chan has had an easier time finding businesses to invest in. After raising 250 million yuan (HK$307.13 million) for a yuan private equity fund in 2011, the company has invested a third of it, including 87 million yuan on two waste-to-energy technology firms.
Nature Elements is close to exiting both firms, via disposal to the controlling shareholder or backdoor listing.
It is also doing due diligence on potential investment targets, including a company that develops energy-efficient air-conditioning technology, a tyre recycling firm and various small hydropower plants.
Some 100 million yuan of the yuan fund was contributed by the Chongqing government and the central government-backed State Development and Investment Corp's technology investment arm, SDIC Hi-Tech Investment.
Chan said the yuan fund tended to invest in more mature businesses with shorter divestment horizons since mainland investors generally demanded returns in five years, compared to 10 years by overseas investors.