Carlyle Group Raises $1.04B For New Asian Growth Fund

Carlyle Group on Tuesday said it raised $1.04 billion for a new fund targeting investments in fast-growing Asian companies, finding appetite among pension funds and financial institutions for exposure to China and India.The new fund is a bet on the resilience of Asia's underlying economic growth in the face of a global downturn. Focused primarily on China and India, Carlyle's team is looking to pick companies that have emerged from the financial crisis relatively unscathed and with potential for rapid growth.'This is a much better time for investing,' said Wayne Tsou, head of Carlyle's growth team in Asia, in an interview. 'After this economic stress test we're seeing which firms will be able to succeed.'The new Carlyle Asia Growth Partners IV is about 50% bigger than the previous Asia growth fund, which closed at $680 million in June 2006. Tsou says over two and a half years that fund invested in 22 companies in the region. Carlyle hopes to put the new fund's $1.04 billion to work over three to five years.Indicative of Carlyle's focus on domestic demand in China, the firm has already made its first investment with the new fund, a $20 million deal to invest in Chinese women's fashion retailer Shenzhen Ellassay Apparel Industrial Co.Carlyle was one of the earliest private equity investors in Asia, opening up its first office in Hong Kong in 1998. It also operates buyout and real-estate funds targeting Asia.'Asia remains a core focus of our global business, and Carlyle continues to devote more resources to China and India,' said Carlyle founder David Rubenstein in a statement.Asia's private equity scene has been dominated by global firms. Near the peak of the market in 2007 and 2008, a rush of capital from hedge funds and investment banks into private equity deals pushed valuations sky high. They have since fallen as the hot money has dissipated.Limited partners, the investors in private equity funds, are also becoming more selective, says Tsou. Many big government pension funds and other limited partners have set up offices in Asia to keep closer watch on local developments and are eager to 'kick the tires' by visiting portfolio companies, he says.Tsou says most of the companies in Carlyle's Asia growth portfolio are growing at rates of 20% to 50% in profit and revenue despite the economic downturn.Still, Carlyle's Asia growth fund investments in Asia haven't always gone smoothly. Carlyle saw its $25 million investment in China's Credit Orienwise Group Ltd. sour as the overleveraged credit guarantee firm struggled with losses and the company admitted to fraud taking place at a unit.Carlyle's Tsou resigned from the board, but is still working with management to address the issues. Tsou said Credit Orienwise's prospects are 'improving.'Still, for growth funds an occasional soured deal can be balanced out by outsized returns on the rest of its portfolio. Carlyle's growth team has had several big wins in the past including an exit from Nasdaq-listed Chinese online travel firm Ctrip.com International Ltd. and its ongoing investment in Claris Lifesciences Ltd., a pharmaceutical company in India.'Investors were very apprehensive about emerging markets before,' said Tsou. 'But China and India are now a less well-kept secret as investors begin to understand the risk-adjusted returns of growth funds.'