China-Middle East investment opportunities in sights as CIC teams up with Partners Group

Swiss private equity firm Partners Group is working with China Investment Corp (CIC) and Middle Eastern sovereign wealth funds to curate growing investment flows as the two regions cosy up.

The Zug-based firm has long-established relationships with CIC, which has assets of US$1.35 trillion, and some of the large Middle Eastern sovereign wealth funds to invest their money globally. These relationships allow the firm to understand the funds' investment objectives and find opportunities to collaborate between regions and organisations, Kevin Lu, chairman of Asia for Partners Group, said in an interview.

"We see strong and growing economic linkages between the Middle East and Asia today," Lu said. "As a trusted general partner with a long-term relationship with sovereigns on both sides, curating that investment flow is quite interesting."

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CIC, China's sovereign wealth fund established to help diversify its foreign-exchange reserves, has shown strong interest in investing in the Middle East, especially after President Xi Jinping's visit to the region in December 2022. CIC set up a US$1 billion fund earlier this year to invest in companies in the Gulf Cooperation Council (GCC), with the aim of eventually bringing them to the mainland China market.

State-owned investors in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates - the six GCC nations - invested more than US$2.3 billion in China in 2023, compared with just US$100 million in 2022, according to data provider Global SWF. The oil-producing nations are working to diversify their economies and broaden their portfolios.

Partners Group, which has around US$150 billion of assets under management, is eyeing the opportunities brought by warming ties between the two regions. Its relationship with CIC is part of a China strategy of bringing capital in and out of the country as well as creating value for its global companies with Chinese opportunities, according to Lu.

"We own a lot of companies in the US and Europe, and many of them have an angle on China, one way or the other," Lu said. "They believe they could manufacture better, improve their supply chain or broaden their market in China. For us, China is as essential as ever because China is not just about investing in China. It's about all the other things."

He added that CIC will continue to play a role as Partners Group's fund investor, or limited partner, and support the private equity firm in helping its assets venture into China when the business strategy makes sense, while Middle Eastern sovereign wealth funds, which he did not name, will work with both parties to invest.

"Middle Eastern sovereign wealth funds are also interested in investing in global assets and often believe that China is the part of value creation for some of the assets," Lu said. "We could get their capital together to invest in assets globally but create value from the China angle where this makes sense for the asset."

Last week, Partners Group opened a Hong Kong office to expand its wealth-management business, adding to its 20 other global locations. Meanwhile, it has been channelling capital from China to global private equity markets, including sovereign wealth funds, central bank capital, insurance companies, and private wealth, said Lu.

Kevin Lu, Asia chairman with Partners Group. Photo: Milken Institute alt=Kevin Lu, Asia chairman with Partners Group. Photo: Milken Institute>

In 2016, Partners Group teamed up with CIC and the Canadian province of Quebec's pension fund in a €1.8 billion (US$1.9 billion) acquisition of French property management company Foncia Group from private equity firms Bridgepoint and Eurazeo.

Lu said his firm has been highly selective with investments in China itself, focusing on sectors that are "China for China", such as domestic consumption and healthcare.

Apex Logistics, casual dining chain Green Tea Restaurant, maternal and child products retailer Shanghai Aiyingshi, and retail display firm BCR Group are in its portfolio.

"We look for assets that will stay immune to geopolitical tensions and show resiliency through economic cycles," Lu said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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