China-focused CDH Investments, which manages over $27 billion, has joined hands with a state capital investor for the launch of a mezzanine fund to deploy about 2.5 billion yuan ($344.6 million) in internet data centre (IDC) infrastructure.
Alternative asset management firm CDH Investments set up the fund, dubbed “CDH Zhiwen Mezzanine Fund,” in partnership with Fuzhou State-Owned Capital Investment and Operation Group to invest in modern IDC infrastructure to boost “the high-quality development of a digital economy,” the state capital investor announced earlier this week.
Located in southeastern China’s Fujian Province, Fuzhou State-Owned Capital Investment and Operation Group posted 5.4 billion yuan ($744.3 million) worth of assets by the end of 2022. Its businesses span financial and strategic investments, fund management, and other commercial trades.
Designed for a hybrid of debt and equity financing, a mezzanine fund offers a complex form of business loan that gives the lender the right to convert a debt to an equity interest in the company after a predetermined payback time frame has passed.
Typically utilised in the expansion of established businesses, mezzanine financing is frequently associated with acquisitions and buyouts, for which it may be used to prioritise new owners ahead of existing owners in case of bankruptcy.
Since the start of its mezzanine financing strategy in 2011, Beijing-based CDH Investments has deployed about 35.8 billion yuan ($4.9 million) into areas like infrastructures, new energy, and what it calls “new industrial assets” such as modern industrial parks and elderly care communities.
Through mezzanine financing, it invested in Wensheng AMC, a Chinese provider of special opportunity investment and management services, in 2019. In the same year, it became a backer of Shanghai-based Yovole Networks, which offers cloud computing data centre services. Its signature mezzanine financing transactions also include an investment in photovoltaics company Trina Solar in 2017.
Under this strategy, the firm currently manages 23 billion yuan ($3.2 billion), serving a network of 45 institutional limited partners (LPs) in China. These LPs include trust funds, university endowments, funds of funds (FOFs), and industry investors, according to its website.
The new mezzanine fund comes about three years after CDH Investments announced the close of its first IDC-focused mezzanine fund at 2 billion yuan ($275.6 million) in June 2021. The maiden fund roped in LPs including insurers China Pacific Insurance and Taikang Group.
Founded in 2002, CDH Investments invests across private equity (PE), venture and growth capital, private credit, public equities, and real assets, with more than $27 billion of assets under management (AUM). It has backed over 350 companies, of which more than 100 have gone public.