Permira has done some pretty good business in China recently. When the London-based private equity firm offloaded a third of its stake in a Macanese casino group in August, it did so at a price more than a fifth higher than the year-to-date average. But in terms of actually making new investments, it has achieved very little. Since it opened a Greater China office three years ago, Permira has done just one deal (for a satellite company, nothing much to do with China).
Which is where CDB Capital comes in. This week Permira announced an agreement to pursue opportunities jointly with the start-up investment arm of China Development Bank, the state-owned policy bank. Even allowing for the non-exclusive nature of the arrangement, this looks a sensible move. For one thing, it pays to know people. Foreign PE firms have been hammering on doors across China for years. But the biggest allocations from the National Social Security Fund – and thus the biggest deals – consistently accrue to well-connected firms such as Citic, CDH, Hony Capital and New Horizon. At Hony, chairman Liu Chuanzhi has been officially garlanded by the State Council as a “National Model Worker”. New Horizon was cofounded by Winston Wen, son of the current premier.
Second, size matters. Six funds accounted for about four-fifths of the $10.7bn in commitments received by China-based funds in the third quarter, according to the Asian Venture Capital Journal. Teaming up with an arm of CDB, with its $800bn of assets and hundreds of thousands of corporate relationships, could just propel Permira into a whole new sphere of influence. Managers had better hope that deals start flowing soon, though. The firm is trying to raise a fifth global fund but still has about €2bn of Permira IV to be invested by next September. Dry powder won’t spend itself.