Legend Capital Completes RMB 10 Billion Fundraise with Over 90% Returning LP Support

On June 27, 2019, Legend Capital completed fundraising for its new RMB fund, which includes a Comprehensive Growth Fund, an Innovative TMT Fund, and a Healthcare Fund, with a total size of nearly RMB 10 billion. This has become the largest RMB fund completed in the market during this period.

“Over 90% of existing LPs continue to provide support,” said Li Jiaqing. He noted that over the past decade, the sources of capital for RMB funds have been highly diverse; however, Legend Capital’s RMB fund has focused on institutional investors from the outset. In 2009, it became one of the first managers appointed by the National Social Security Fund. To this day, the structure of its major funding sources remains unchanged, resulting in a long-term, sustainable, stable, and diversified capital base.

It is understood that in Legend Capital’s current fund, institutional limited partners (LPs) account for more than 90%, including Lenovo Holdings, the National Social Security Fund, state-backed fund-of-funds and financial holding companies, insurance capital, listed companies, and third-party channels.

In terms of investment strategy, the RMB 10 billion fund is divided into three segments with different focuses. Among them, RMB 7 billion is allocated to comprehensive funds, which will primarily invest in growth-stage projects; while RMB 3 billion is allocated to innovative TMT and healthcare funds, focusing on early-stage innovation and pre-expansion growth-stage projects.

“We believe this combination will allow us to cover the spectrum of minority equity investments in China’s early-to-mid stages,” said Li Jiaqing. Compared with its previous RMB-denominated funds, Legend Capital has increased the size of its latest Comprehensive Growth Fund. “Going forward, the capital commitment per portfolio company will be raised from an average of RMB 100–300 million previously to RMB 100–500 million. By leveraging resources from our limited partners (LPs), we can commit more than RMB 1 billion to a single project. There will be no significant changes in our investment stage focus.”

Legend Capital has achieved a strong track record in RMB-denominated investments. Previously, the Legend Capital New Hai Fund, established in 2015, invested in 12 projects over three years and has since seen seven of them go public, including well-known companies such as WuXi AppTec, CATL, and Pharmaron. This fund is regarded as one of the key markers of the maturation of Legend Capital’s RMB funds.

Since 2009, Legend Capital has been managing RMB-denominated funds, maintaining a fundraising frequency of every two to three years. Over the past decade, Legend Capital has raised and managed four comprehensive RMB funds, launched in 2009, 2011, 2013, and 2015, respectively. In addition, it has established specialized early- and growth-stage funds, including the New Sea Fund, Healthcare Fund, and Culture, Sports & Entertainment Fund.

To date, Legend Capital’s total assets under management have exceeded RMB 45 billion. “We will carefully maintain our scope of competence,” said Li Jiaqing. He noted that further expansion of the fund size would introduce potential risks. First, an excessive number of portfolio companies would pose significant challenges to the general partner’s (GP) management capabilities. Second, an overly large fund size would shift the investment focus, raising questions about whether to expand into mergers and acquisitions, secondary markets, mezzanine financing, or even non-equity sectors.

“For Legend Capital, at least as of today, a more conservative approach is warranted. We have always placed great emphasis on post-investment management. The strategy of broadly covering multiple sectors does not align with Legend Capital’s investment philosophy, nor is it suitable for the current market environment for RMB-denominated funds.” Li Jiaqing believes that maintaining an appropriate fund size helps further solidify the team and strengthen the foundational aspects of management.

“Only a select few can deliver sustained, reasonable returns over long time horizons and withstand the erosion of investment gains caused by macroeconomic fluctuations.” In Li Jiaqing’s view, fundraising has become increasingly difficult across the market as capital concentrates among top-tier players. Leading fund managers must exercise restraint: although they may be able to raise larger funds amid favorable market sentiment, they should operate strictly within their capabilities. Maintaining consistent and stable returns at a scale around RMB 10 billion hinges on the investment prowess and management expertise of the institution.

It is reported that in the first half of 2019, Legend Capital already had six portfolio companies achieve initial public offerings (IPOs) across multiple capital markets, including China’s A-share market and U.S. stock exchanges. These companies include Pharmaron, Huicheng Environmental Protection, Ruhnn Holdings, Luckin Coffee, Lihua Animal Husbandry, and Maoyan Entertainment. In addition, Kerui Technology has passed the listing committee review, and approximately ten other portfolio companies are currently in the IPO pipeline.

This article is reprinted from: China Venture