Principle Capital, a Chinese private equity firm that has a strategic relationship with US-based Clayton, Dubilier & Rice (CD&R), closed its second US dollar-denominated fund with USD 225m in commitments.

The final close on Principle Capital Fund V – named so that the vintage numerals align with the firm’s longer-standing renminbi strategy, which remains active – took place at the end of July, according to two sources familiar with the situation. LPs include several global fund-of-funds.

The fund launched in mid-2022 with a target of USD 500m and the first close was split into two tranches, one of which took place in late 2022 and the other in early 2023. A second close of USD 200m came in June 2023. There have already been three investments.

One of the sources said that Principle is “pleased with the fundraise in the context of a very challenging market environment”, noting the fund is of a similar scale to its predecessor, which has performed well.

Approximately USD 3bn has been committed to China-focused US dollar funds year-to-date, according to AVCJ Research. This compares to USD 12.9bn in 2023, while the annual average for the prior eight years is USD 24.8bn. There have been barely a dozen partial or final closes in 2024, and two funds – launched by 5Y Capital and Trustar Capital – account for over half the total raised.

With LPs wary to back China strategies amid concerns about geopolitics, uncertain exit prospects, and slowing economic growth, numerous managers have slowed their pace of deployment in the hope that conditions will have improved when they come back to market.

Founded in 2002, Principle raised approximately CNY 4bn (USD 554m) across three renminbi funds before entering the US dollar space. This coincided with the formation of a partnership with CD&R, which offers access to its global networks and operational insights.

The goal was to raise US dollar and renminbi funds in tandem and have them invest in the same deals on a pro-rata basis. However, there is some flexibility to take more of one currency than the other.

The first US dollar vehicle – known as Fund IV – deployed its approximately USD 200m corpus across seven investments. An exit from Huahong Art Home Shares, one of China’s leading providers of paintings for home décor, is largely responsible for current distributions to paid-in (DPI) of 0.77x, the first source said.

Citing Preqin’s latest Greater China PE and VC benchmarking report, the source added that Fund IV is one of the top three performers for its vintage by distributions.

Fund V follows the same strategy as its predecessor, targeting equity investments of USD 20m to USD 100m in the advanced industrial, business services, healthcare, and consumer spaces. There is a preference for relatively mature and profitable businesses, while over the course of Fund IV there was an uptick in control deals.

Principle declined to comment on fundraising. Greenhill, which served as placement agent for the new fund, also declined to comment.