The following story was first published on Debtwire on January 9, 2015

Asian private equity firm RRJ Capital, founded by ex Goldman Sachs and Hopu Investments dealmaker Richard Ong, has begun fundraising for a third buyout fund of at least USD 4bn, according to two sources familiar.

The planned fund underscores the rise of home-grown Asian firms, whose ranks include Affinity Equity Partners, Baring Private Equity Asia, PAG and Hopu Investment Management, and the more successful local dealmakers are now matching their global rivals in terms of fund sizes.

RRJ declined to comment on its fundraising plans.

RRJ’s third fund will also add to a record store of dry powder in Asia for private equity investments, which Bain & Co estimated last year at USD 138bn, and which is leading to increasing competition for deals. Adding to that store of uninvested capital, a series of further funds closed last year with a focus on Asia deals, including TPG Capital (USD 3.3bn), CVC Capital (USD 3.5bn), Carlyle Group (USD 3.9bn), Morgan Stanley Private Equity Asia (USD 1.7bn) and Affinity (USD 3.8bn).

A fund of USD 4bn would bring RRJ’s total capital raised to around USD 10bn in just four years, putting it on a par with rivals such as Affinity Equity Partners, which has been investing in Asia since 2004. It also comes just a couple of years after RRJ closed its last buyout fund, which at USD 3.58bn was the largest raised by an Asian firm at that time.

Ong became famed for a rapid-fire style of investing at Hopu, a USD 2.5bn fund established in Beijing in 2008, where he teamed up with China rainmaker Feng Fenglei. He has continued the pattern with his own vehicle, RRJ.

RRJ’s hybrid style, adapted to the Asia markets and often bearing resemblance to a hedge fund investor, has seen the firm largely steer away from borrowing debt for buyouts of whole companies, the traditional private equity style in the West, in favour of investments in pre-IPO deals and minority stakes in companies or joint ventures, usually followed by a swift exit.
Malaysia-born Ong brought his brother Charles, a former senior Temasek executive, into RRJ in 2011.

Temasek is an LP in RRJ, and the firm has completed co-investments alongside the Singapore sovereign fund, including buying USD 90m of Olam International bonds along with warrants for the company’s shares in 2013, when the Singapore commodities supplier was under attack from shortseller Carson Block.

The Ong brothers’ deals range from the USD 3.5bn LBO of hydraulic fracturing company Frac Tech International, to a USD 326m investment in ING Groep’s US insurance unit, and a stake in AAB China, a diaper maker. More recently it established a USD 300m joint venture with Jollibee Foods Corporation of the Philippines to expand coffee chain Dunkin’ Donuts into China, looking to tap growth in the world’s second largest economy.

Ong’s ability to return capital appeals to limited partners (LPs) that have been disappointed by returns made on many of their private equity investments, and the lack of liquidity from the funds they have seeded in the region.

RRJ’s first USD 2.3bn fund, closed in 2012, has already returned 85 cents on the dollar, while its second fund, closed in 2013, is returning 25 cents on the dollar, one of the sources said. The funds are generating IRRs of 21% to 25%, the same source said.

As a result, the firm already has around USD 3bn in “soft commitments”, and expects to wrap up the fundraise by around July. Globally, private equity funds that closed in 2014 took an average of 16 months, according to data released this month from Preqin.

by Stephen Aldred