State-owned China Resources’ private equity arm eyes investments in Hong Kong tech start-ups

China Resources Capital Management, the private equity arm of state-owned conglomerate China Resources (Holdings) with HK$100 billion (US$12.8 billion) in assets under management, is looking to fund Hong Kong tech start-ups and help them expand into the mainland.

Tony Zhang, chief investment officer of China Resources Capital, said the firm can provide Hong Kong entrepreneurs seed capital through its 500 million yuan (US$71 million) angel fund that focuses on early-stage companies in life sciences and health care.

Established in March 2017, China Resources Capital raises funds from both onshore and offshore institutional investors such as sovereign wealth funds, insurers and corporates. It also invests in consumer goods and property sector.

“Whilst we are a state-owned company, China Resources (Holdings) [has been based] in Hong Kong since 1938. We feel that it is part of our mission to support start-up companies in Hong Kong,” Zhang said on the sidelines of the Cyberport Venture Capital Forum earlier this month that brings together venture capitalists and start-ups based in the city.

China Resources Capital manages 19 private equity funds, seven of which focus on the tech sector, mainly in artificial intelligence, new materials, life sciences and semiconductors.

Although the Shenzhen municipal government has a stake in the 500 million yuan fund, Zhang said he was confident that regulators will support such cross-border investment in Hong Kong companies and any investment would most likely be in the form of outbound direct investment.

In 2018, there were 2,625 start-ups in Hong Kong, employing over 9,500 people.

The Hong Kong government has identified biotech, fintech, artificial intelligence and smart city as four areas of strength where it is targeting more R&D input.

Zhang said China Resources Capital could help the start-ups scale up and bring their innovation and technology into the much bigger mainland market, as its portfolio companies are often engaged as suppliers to its parent’s group companies involved in consumer products, health care, energy, technology and finance.

“While Hong Kong does not lack talent and R&D capabilities at local universities, the challenge confronting Hong Kong’s start-up scene is that the addressable market for their solutions in Hong Kong is too small. You really cannot grow meaningfully by limiting yourself to the city,” said Zhang.

He, however, noted that China Resources Capital’s “priority is to boost the return to our investors, and whether the targeted companies will bring synergies to the China Resources group companies is a secondary consideration”.

Recently, the fund manager worked with Fung Investments, the private investment arm of the families of Victor Fung and William Fung, the controlling shareholders of Hong Kong-based logistics and trading firm Fung Group, to invest in a US$300 million private equity platform targeting food companies in China and Southeast Asia. The platform also involves Bahrain-based alternative manager Investcorp.