The Chinese private equity firm put its fundraising plans on hold to focus on generating returns from the existing portfolio and lay the ground for more specialist and control-oriented strategies

Oceanpine Capital tapped external investors for the first time when raising its second fund in the shadow of the COVID-19 pandemic in 2020. The China-based technology and healthcare investor’s debut fund of USD 300m was sourced solely from its founder, serial entrepreneur Dave Chenn.

Fund II closed on USD 400m, with a 30% GP commitment and contributions from multiple institutional LPs. Oceanpine mapped out a step-up in size and specialisation for 2023, planning a third fund of USD 600m focused on green technology and with a deeper global LP base. However, the fundraise remains in “soft marketing” mode, with Chenn citing challenging market conditions.

The firm has also completed an about-turn in its renminbi-denominated fund business. Two government-linked fund-of-funds had approved commitments to funds with an intended scale of CNY 2bn (USD 280m) and CNY 500m, respectively. On the cusp of signing, Oceanpine pulled out.

“There are certain things we would do and would not do. Following careful consideration, we decided to slow down the pace of fundraising pace and focus on portfolio management,” Chenn explained. “At the same time, we have resolved to change our strategy to focus on control transactions and emphasise industry consolidation.”

The change of pace is notable, given Oceanpine’s rapid ascent from zero assets under management (AUM) to approximately USD 3.5bn in the space of five years. The strategic shift, however, could be seen as Chenn once again aligning himself with prevailing policy direction.

Oceanpine was conceived to participate in China’s industrial transformation, formalising Chenn’s longstanding interest in technology and providing expansion capital to fast-growing start-ups. Oceanpine 2.0 will invest across a narrower set of sub-sectors and look to play a more meaningful role in the operations of portfolio companies facing a different macroeconomic reality.

Chenn is arguably best known as the founder of China Century Group. Established in Beijing in 2005, the company has evolved into a multinational with exposure to energy, healthcare, technology, automotive components. Its footprint spans China, the US, and Southeast Asia.

Chenn’s interest in private equity was piqued by participation as an LP in funds managed by more than 15 GPs. He transitioned away from China Century and into what became Oceanpine. Although China Century contributed capital to Fund I alongside Chenn and remains an LP, Dongjun Ma, a managing partner at Oceanpine, emphasises the firm’s independence.

“Investment opportunities are open to all investors on an equal basis; China Century makes its own investment decisions. However, there are many synergies arising from communication on deal sourcing to portfolio management,” Ma said. China Century might suggest projects, provide expertise advice, and share industry resources to support value creation, he added.

Ma reflects Oceanpine’s desire to institutionalise, having joined as a founding member in the firm’s early days. A former investment banker who worked for various global institutions, and also for China Century for a while, he met Chenn in the 1990s when they were both studying in Chicago.

“We are of a similar in age, have similar experiences – we studied and worked in the US, then returned to Asia – and we share the same values around participating in China’s economic development,” Ma said. “His industry experience and my financial background are complementary. I admire Dave for his success as an entrepreneur, he has the right ideals and ambitions.”

Gen-tech to deep-tech

Oceanpine’s debut investment was in Nexperia, a semiconductor business carved out from NXP Semiconductors for USD 2.75bn in 2016. It was led by JAC Capital and Wise Road Capital. There followed commitments to X-ray components supplier iRay Technology, artificial intelligence (AI) specialist Enflame Technology, chipmaker Horizon Robotics, and drug developer Ansun Biopharma.

Buoyed by strong early performance of Fund I, the firm returned to market with its sophomore vehicle in early 2019 and started marketing to US investors towards the end of the year. A first close of USD 200m took place six months later and the final close of USD 400m – short of the USD 500m target – came in December 2020.

The fundraising challenge wasn’t so much US-China tensions as ensuring US investors had access. Oceanpine had hoped to win support from the likes of pension funds and endowments, but COVID-19 restricted opportunities for on-site due diligence. Family offices, insurance companies, listed enterprises, and entrepreneurs.

Fund II is now more than 80% deployed. In addition to a re-up for Enflame, it has backed enterprise software provider XforcePlus, AI healthcare business XtalPi, semiconductor equipment supplier Best, biotech players Apexigen and Apollomics, IT security software specialist ZShield, and chip designers Black Sesame, E-Town Semiconductor, and M Square.

A debut renminbi-denominated fund – launched because “of the travel restrictions … [and because] some Chinese start-ups targeting Star Market listings prefer renminbi,” Chenn told AVCJ in 2021 – closed on CNY 2bn in June 2021. LPs included government guidance funds and fund-of-funds.

According to an investor in the fund, the decision to commit was driven by Oceanpine’s international makeup in terms of its management team and operations and its understanding of the local market. Oceanpine is “a patient and perceptive manager, able to adjust strategy in accordance with changes in the market and in specific industries,” the LP added.

Chip designer Moore Threads and battery maker Welion New Energy have been added to the portfolio, underscoring Oceanpine’s deep-tech credentials. The firm claims to have increasingly focused on this area since 2019, though it occasionally dabbles elsewhere – for example, by backing delivery start-up Shansong and snack food producer Weilong. Both could be considered pre-IPO investments.

Oceanpine has also established joint funds with select portfolio companies, in part to improve its deal sourcing within specific industry supply chains.

Fund III is intended to deepen the firm’s deep-tech exposure while pushing into green-tech, with Shirley Hu, a managing director, telling Mergermarket last year that over half the corpus could be deployed in this area. The fund will continue its predecessor’s focus on minority investments.

Portfolio engagement

The second US dollar fund and debut renminbi fund have made about 10 investments, half of them re-ups. Chenn acknowledged that deployment has been slower than usual while several IPOs have been delayed, including “one or two targeting USD 1bn-level returns.”

Consequently, Oceanpine is not rushing to raise new capital. “I think the IPO market will continue to adjust in 2024. With around USD 3bn deployed in more than 100 companies, we are focusing on post-investment management instead – we need to generate good DPI [distributions to paid-in],” Chenn added. “As for new deals, we want to invest in companies with greater certainty.”

The first US dollar fund is now fully deployed and had generated DPI of 1.56x as of January 2024. The IRR and money multiple were marked at 22.7% and 2.03x, respectively. This compares to 19.1% and 1.64x for Fund II and 48.5% and 2.04x for the debut renminbi fund.

On top of this performance, Chenn believes his entrepreneurial heritage and Oceanpine’s industrial resources position it well to address consolidation opportunities in China. These operational bone fides are endorsed by several portfolio company CEOs.

According to Haoan Lu of E-Town Semiconductor, Oceanpine has provided support in areas such as operational and financial management, strategic development, client engagement, recruitment, and IPO preparation. Kai Yu of Horizon Robotics added that the GP played a role in the introduction of new products.

Weicheng Hua, chairman of Beidou Intelligent Connected Vehicle (BICV), observed that Oceanpine “has a deep understanding of the smart automotive industry and has made a lot of investments in the upstream autonomous driving chip industry. We benefit from their insights into the development of the that industry,” he said.

BICV supplies smart cockpits to a string of leading Chinese automotive manufacturers. Oceanpine introduced the company to Horizon Robotics and Black Sesame, as well as FAW Group, SAIC Motor, and Geely Automobile Holdings. However, the company – formerly known as Yuantel Technology – has a historical relationship with Oceanpine that extends well beyond network sharing.

BICV was incubated by Chenn and China Century in 2009 and then merged into the automotive electronics unit of A share-listed Beijing BDStar Navigation in 2019. China Century retained a 43.5% interest. Later that year, Oceanpine launched a joint fund with BICV, backed by commitments of CNY 395m from BDStar and China Century. In 2020, the fund bought a 16.67% stake in BICV.

Two years later, several financial investors – led by CICC Capital – backed BICV. In 2023, China Century, having transferred its stake to an affiliate entity, acquired a further 15% from BDStar at an implied valuation of CNY 1.68bn, becoming the single largest shareholder with 40.57%. BDStar and Oceanpine hold 18.21% and 13.36%.

Ma noted that Oceanpine never sought control of BICV because of regulatory concerns tied to the company’s IPO plans. However, it remains an active investor, contributing to a turnaround that has saw BICV’s revenue increase 50% last year, stoking ambitions of imminent profitability.

“We plan to go global in through direct investment or acquisitions,” Hua added. “If there are any suitable local targets, we would love to partner with Oceanpine in terms of capital, talent, and overseas resources.”

The private equity firm, for its part, claims to be looking for relevant assets at home and abroad. Chen said talks are underway with a potential buyout target in BICV’s value chain. Should this deal materialise, Oceanpine would use the business as a consolidation platform and pursue bolt-on acquisitions in the upstream and downstream arms of the smart automotive space.

Asked about the conflicts of interest that could arise from China Century taking out the Oceanpine fund, a spokesperson for the private equity firm said that other shareholders – including public market investors, should a listing occur – would play a role in price discovery.

Buyout philosophy

This plan for smart automotives serves as a template for Oceanpine’s wider agenda in areas such as green-tech, new energy, advanced manufacturing, and fronter technologies. According to Ma, the firm is looking at take-privates of listed companies, carve-outs from multinationals, and asset spinoffs, as well as pre-IPO deals. It tends to avoid distressed businesses.

What was a growth-stage investment strategy as evolved into what he describes as a barbell approach, with early-stage start-ups at one end and mature late-stage companies at the other. For the latter, M&A and industry consolidation is a key part of Oceanpine’s value creation proposition.

Chenn is keen to graduate from growth equity to buyouts to reduce the firm’s reliance on IPO exits and to maximise operational impact. “It’s easy to talk about value creation but it’s hard to play with it. Minority shareholders have limited capabilities in proactively assisting every single portfolio company with growth. In control deals, it’s totally different,” he said.

If this is pushing Oceanpine towards buyouts, then the pull factor is natural industry consolidation. Chenn pointed to autonomous driving as an example. PE investment outpaced the development of the segment, facilitating the emergence of companies with unsustainable business models that cannot continue without external funding. Some tier-two players are now open to acquisition.

For all the talk of control transactions in China, deal flow has been sparse relative to other markets and dedicated buyout funds are few and far between. According to Chenn, Oceanpine could seed single-asset vehicles that pursue these investments and then bring in other players.

“We could start off committing our own capital to deals and invite LPs to join us when risks are relatively controlled,” he said. “We may also launch smaller project funds to create more certainty LPs in an uncertain environment.”

The firm participated in its first investment, the Nexperia carve-out, as GP and LP, contributing capital from Fund I and making a parallel commitment to a Wise Road fund. Nexperia was exited to A share-listed Wingtech Technology in 2018.

Replicating this transaction would be difficult because semiconductors feature prominently in geopolitical tensions between China and the US. Nevertheless, Oceanpine believes the international M&A experience could be applied to other industries.

“Introducing overseas advanced technology to China and then providing products and services to international clients – I think there is still space for this ‘in China, for global’ approach,” Chenn said, highlighting the competitive edge of Chinese companies in certain segments of engineering.

Ideally, the firm would establish investor consortiums for such deals, diversifying the risk and drawing on the expertise of different stakeholders. Ma believes this would be easier in a Chinese context than a Western context, given global GPs tend to have their own in-house operations teams.

“We know how to do it and what kinds of resources and talents are required,” he said. “With a pragmatic and flexible approach, we can execute the strategy step-by-step. If we find that additional capabilities are needed during the process, we can take a collaborative approach first.”

At present, Oceanpine is not looking to recruit investment professionals with international buyout expertise. Rather, the firm will collaborate with other financial players. Existing staff are also being encouraged to develop their skillsets to address control opportunities, with Chen noting that “you can’t be a good investor if you are not a good operator.”