Reuters

By Alec Macfarlane

(The author is a Breakingviews columnist.)

HONG KONG, Jan 21 ( Breakingviews) - TPG is taking a fresh approach to China. After a long dry spell in the People's Republic, the U.S. buyout firm co-led by Jim Coulter will now work with the private equity arm of investment bank China International Capital Corp to pursue deals using a fuzzy "China Synergy platform". Given recent trends, a partnership model is worth testing.

Such is the case for TPG. It was prolific in China under Shan Weijian, who decamped in 2010. Since then, TPG's investments in the country have been patchy. That includes a somewhat barren stretch between 2014 and 2017 when the firm only did a few small deals that didn't register on data outfit Dealogic's radar. Hiring former Warburg Pincus veteran Chang Sun helped kickstart things. TPG participated in a $1.9 billion injection of capital into Baidu's financial services division last year.

Meanwhile, CICC has been humming along over the last decade, putting money into dozens of companies including startup Luckin Coffee and food delivery giant Meituan Dianping. The Chinese group could lead TPG to a raft of opportunities. Though it's not clear how they intend to collaborate - the press release is fraught with vague language - success might invite copycats.

Chinese private equity investors could use help, too. Their counterparts abroad have generated 42 percent gross annualised returns in China on exited investments made between 2012 and 2016, according to the Centre for Asia Private Equity Research, compared to a local rate of 32 percent. Foreigners also might be able to help mainland peers navigate increasing international hostility to Chinese money.

Joint efforts in private equity don't always work well, though. Some so-called club deals popular during the boom years of 2004 to 2007 ended messily. And cultural clashes between Western and Chinese financial institutions are well-established. For example, Morgan Stanley's frustrations over strategy and direction prompted it to sell its stake in CICC in 2010, to a group that included TPG. If such hurdles can be overcome, though, TPG and CICC may yet find some profitable synergy.

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CONTEXT NEWS

- U.S. buyout firm TPG and CICC Capital, the private equity arm of investment bank China International Capital Corp, said on Jan. 10 they would establish the "China Synergy platform" to work together on deals.

- The firms will use both U.S. dollars and yuan to invest in both China and overseas.

- "This represents a powerful opportunity for TPG to expand our presence in the country," said Tim Dattels, co-managing partner of TPG Capital Asia.

- TPG Chairman David Bonderman, CICC Chief Executive Bi Mingjian and CICC senior adviser Teh Kok Peng will serve on the steering committee of the joint initiative.

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