BEIJING—The private-equity arm of Chinese financial and industrial conglomerate CITIC Group said it has raised a total of nine billion yuan ($1.32 billion) to create the largest local-currency fund in China that will focus on turning around state-owned enterprises.
Wu Yibing, the president of CITIC Private Equity Funds Management Co., said in an interview that two-thirds of the fund will be allocated to companies in the state sector, where the fund enjoys good access in part because of its links to state-owned CITIC as well as CITIC Securities, China's largest brokerage by earnings.
"We're known by local governments and portfolio companies as 'insiders'," Mr. Wu said. "We sit on the same side of the table a bit more often." The fund's largest investor is the National Council for Social Security Fund, China's pension fund.
Now that it has completed fund raising, CITIC Mianyang Private Equity Fund has overtaken Bohai Industrial Fund to become the largest yuan-denominated fund ever raised in China. Bohai Industrial is a 6.1 billion yuan fund.
Several of the world's largest private-equity funds are raising local-currency funds to snag bigger deals in China with fewer constraints. This month, Carlyle Group LP announced plans to raise a yuan fund in partnership with the Beijing city government, a political connection that it hopes will give it an inside track on deals.
One of the advantages of local-currency funds is that they can invest in a broader range of sectors, including some that are restricted to foreign investment, such as the media. "We'll fully leverage that," Mr. Wu said.
The fund has already invested 2.4 billion of the 2.7 billion yuan available after the first round of fund raising. Among its portfolio companies are Kuaijishan, the oldest Chinese liquor brand, and Wind Info, a data-service provider that aspires to be the "Bloomberg of China."
Although all foreign equity firms operating in China stress their local recruitment and "guanxi"—official connections—in order to win business, Mr. Wu said the CITIC fund's Chinese roots would be a core part of its appeal, allowing it to establish an "emotional connection" with local firms.
"We can say 'we are your friend'," he said.
The fund would play on the aspirations of local companies to emulate Chinese corporate success stories such as Lenovo Group Ltd., China's biggest personal computer maker by shipments, and white-goods giant, Haier Group.
Mr. Wu joined CITIC Private Equity from Legend Holdings Ltd, where he was managing director. Legend is the parent of Lenovo.
The chairman of CITIC Private Equity is Liu Lefei, who was formerly the chief investment officer of China Life Insurance Ltd., one of China's leading insurers. Unlike top executives at many private-equity firms in China, Mr. Liu has never studied overseas. The fund's investment committee "doesn't need to speak English," Mr. Wu said.
Mr. Wu said CITIC Mianyang will seek minority stakes in companies. "Control doesn't work in China," he said, noting the dominant role played in many Chinese companies by their founders, who are often reluctant to step aside.
Among the fund's targets in the state sector will be companies that build machine tools and heavy equipment for China's manufacturing industries.
About one-half of the fund's investors are state-owned enterprises or state entities, Mr. Wu said. The remainder are in the private sector.
