Sequoia Capital China targets raising $1.5 billion in new yuan fund, sources say

By Julie Zhu

HONG KONG (Reuters) - Sequoia Capital China, an early investor in top Chinese technology firms such as Alibaba, aims to raise $1.5 billion or more in a new yuan-denominated fund and is currently pitching it to prospective investors, sources familiar with the plans said.

The China arm of Silicon Valley venture capital giant Sequoia Capital is targeting raising at least 10 billion yuan ($1.49 billion) in the new fund, said the sources, who couldn't be named because the plans aren't public.

A string of venture capital and private equity funds are lining up to raise funds in yuan, tapping into the appetite of investors eager to grab opportunities in certain sectors in the world's second largest economy such as financial services and media that are typically restricted to overseas buyers.

Another big investment opportunity looms as startup founders prepare to take their companies public in local markets where valuations are generally higher than overseas exchanges.

Fund managers are also looking to benefit from growing sources of capital at wealth management firms, insurers and other large domestic institutional investors that aim to boost returns in alternative assets, analysts and investors said.

Reuters reported last month that Hillhouse Capital Group, an early investor in China's tech behemoths including Tencent and JD.com, also plans to raise a new yuan fund with a target of about 8 billion yuan.

"A yuan fund generally makes things much easier when it comes to investments in Chinese firms as some of them are either in the industries where the government considers sensitive or they are keen to receive capital in yuan if they plan to go public at home in the future," said one of the sources.

Investment managers have raised about 60 billion yuan this year till early July in funds denominated in the Chinese currency, compared with 64.4 billion yuan in all of 2016, according to data provider Preqin. That would put this year on pace to be the biggest since 2012, when 145.8 billion yuan in aggregate capital was raised.

Sequoia Capital China declined to comment.

The company was founded in 2005 by former investment banker Neil Shen, now one of the country's best-known venture capitalists.

It has raised four yuan-denominated funds and is among several China-focused investment firms such as Qiming Venture Partners that have funds in both U.S. and Chinese currencies.

Sequoia Capital China has over 300 portfolio investments in China, including ride-hailing firm Didi Chuxing and on-demand services provider Meituan-Dianping. It will continue to focus on sectors ranging from industrial technology, healthcare and consumer to media with its new fund, said one of the sources.

($1 = 6.7260 Chinese yuan renminbi)

(Reporting by Julie Zhu; Additional reporting by Elzio Barreto and Kane Wu; Editing by Muralikumar Anantharaman)