Lehman Brothers and IBM have teamed up to create a US$180 million private equity fund to take minority stakes in companies in China.
At a time when a private equity giant like the Blackstone Group is seeking to raise a US$20 billion fund, this China fund is a small one.
But the two companies, which were scheduled to announce their venture yesterday, are hoping that the unusual partnership between an investment bank and a technology giant will help differentiate the fund in a country whose warp-speed growth has captured the minds and wallets of corporations around the world.
"We can bring our complementary sets of skills and add value to these companies," said Michael Odrich, head of private equity at Lehman Brothers.
The fund, which will have about 10 professionals, will seek stakes in companies that rely heavily on information technology and have significant opportunities to expand.
Lehman Brothers and IBM each put up US$90 million to capitalize the venture, which both said was just a start.
"It's adequate to get us started," said Richard Birney, vice president for growth initiatives and investments at IBM.
Both Lehman Brothers and IBM have a long history in China.
IBM entered China in 1934 and returned in 1979. It currently has about 7,600 employees involved in everything from sales and services to manufacturing and research.
Lehman Brothers established a Beijing office in 1993. Revenue for Asia and other areas increased 26 percent, to US$1.6 billion, in the nine months ended Aug. 31, according to the firm's financial statements.
Lehman will not be first to the private equity firm in China.
The Carlyle Group, for example, has been active in China for more than half a decade, making its first investment in July 2000.
The group has a number of Asian-related buyout and venture and growth funds and has made and exited a number of investments in China. Its holdings include Ctrip.com International (攜程旅行網), a Shanghai-based travel company, and Pacific China Holdings Ltd (太平洋中國控股), which operates a chain of nine department stores in China.
Other private equity giants, such as Kohlberg Kravis & Roberts and Blackstone, have not made direct investments in Chinese firms.
What differentiates the venture from the US$20 billion private equity funds "is the networks these two organizations bring to the table," said Christopher Manning, a managing director in Lehman's private equity group.
But there are potential risks, as minority-stake private equity investing is a relatively new concept in China.
"We have a lot of experience making minority investments in companies," Odrich of Lehman Brothers said.
"We will actively negotiate shareholder agreements that serve to protect the interests that are relevant to us," he said.
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