CDH: Investors shrug USD vs. RMB conflicts

The chief financial officer of the Chinese firm said during PEI’s CFOs & COOs Forum Asia that its LPs have become more satisfied with how CDH handles conflict of interest issues between its USD- and RMB-denominated funds.

Li Guo, chief financial officer at Chinese private equity firm CDH Investments, said her LPs are less concerned about the conflict of interest arising from the fact that the GP is managing both RMB- and USD-denominated funds than they were four years ago.
Speaking at PEI’s CFOs & COOs Forum Asia held in Hong Kong Wednesday, Guo said she has seen the attitude of LPs change toward the issue, and that the most difficult time was actually back in 2007 when the firm told its LPs about the RMB fundraising plans.
Of course, transparency is the number one factor to reassure LPs, Guo said.
The Chinese firm has set up “clear rules and principles” as to how the investment team would allocate the funds and a “proper corporate governance to ensure that the rules and principles will be followed”, Guo said. “We also have very timely disclosure and full reporting with our advisory committee members and investors.”
In addition, Guo thinks the most important part of the alignment of interest lies in making sure the key terms of the fund limited partnership are consistent in both USD and RMB funds.
“This would ensure the investment professionals not putting one fund’s interest higher than the other one,” she said.
The firm also tells its LPs to look at things in a longer-time horizon.
“We cannot guarantee the same investment pace for both [USD and RMB] funds in the same year. But based on our experience for the past three years, the investment pace in our USD and RMB funds is quite similar and comparable,” she said.
Guo added that having both RMB and USD funds actually add to the firm’s competitive advantage because it could provide a “competitive efficient capital structure” to the target companies.
In fact, decisions on whether to deploy USD or RMB a lot of times are business driven, according to Guo. Because of the difficulty and uncertainty of listing on China’s A-share market, many entrepreneurs still prefer USD investment so they can list in Hong Kong or overseas.
“I’d say the investors are quite satisfied with the results, because they do see the competitive advantages in both of our [USD and RMB] funds,” Guo said.