TR Capital backs hybrid Chinese GP-led restructuring

TR's deal uses China’s QFLP structure, which permits select foreign managers to invest onshore in yuan using capital raised offshore.

TR Capital, one of Asia’s biggest direct secondaries firms, has become the latest to use China’s qualified limited partnership scheme in a GP-led restructuring.

The Hong Kong-headquartered firm co-led a process that involved transferring six healthcare assets from three funds managed by China’s Huagai Capital into a 800 million-yuan continuation fund, according to a statement. The largest of these assets was biopharmaceutical company Henlius, Frederic Azemard, managing partner of TR Capital, told Secondaries Investor.

“The healthcare sector is a key focus area for TR Capital in China given its growth and innovation,” Azemard said in the statement. “We see an increasing number of leaders emerging amongst biopharmaceutical, medical devices and in particular oncology companies. We use an active secondary approach to invest in these companies.”

Shenzhen Capital Group was the other co-lead on the transaction, per the statement.

TR’s deal is the latest to use China’s QFLP structure, which permits select foreign managers to invest onshore in yuan using capital raised offshore, and is notable in that it was a hybrid involving both USD-denominated and yuan-denominated backers. The firm was the sole international participant and invested via its Fund IV, which closed on $350 million in December, according to Secondaries Investor data.

Beijing-based IDG Capital is understood to have been the first to use the QFLP structure in a GP-led transaction last year, transferring $600 million of assets from a mature yuan-denominated fund into a dollar-denominated vehicle with backing from HarbourVest Partners and LGT Capital Partners.

The QFLP regime is expected to bolster China’s comparatively nascent secondaries market. Yuan-denominated funds tend to have four-to-five-year terms, so vehicles are often left with significant amounts of unrealised capital at the end of their lives and in need of liquidity, affiliate title Private Equity International reported last year.

“We are starting to see RMB activities for USD buyers like ourselves seeing that it’s possible to access the RMB secondaries space through QFLP,” Brooke Zhou, a Hong Kong-based partner at LGT, told PEI in October. “If the QFLP space stays as commercial and pragmatic as it seems today and policies do not oscillate, then it’s a pretty interesting and sizeable market that could add a lot to dealflow.”

GP-leds are expected to soar in Asia this year thanks to fundraising delays, rising demand in China for US dollar commitments and a backlog of transactions. Yuan-to-dollar restructurings are likely to play a major role in this growth, enabling Chinese GPs to approach international investors with a seeded, dollar-denominated fund, or to list a portfolio company overseas in order to drive a higher valuation.