L Capital Asia, the private equity arm of the world's biggest luxury goods group LVMH Mot Hennessy Louis Vuitton SA, could begin raising a new fund of more than $1 billion this year, as competition from Western brands creates opportunities to invest in Chinese retailers, its top executive said.
"The reason we want to do a larger fund next time is primarily because opportunities in the segment are huge, and we see larger and larger companies coming to us," Ravi Thakran, managing partner of L Capital Asia, told Reuters in a telephone interview on Thursday.
He said Chinese retailers faced rising competition from Western brands such as Abercrombie & Fitch Co and Gap Inc, which are expected to push quickly into the country's second- and third-tier cities.
This was creating a need to protect homegrown brands, and increasing investment opportunities for L Capital, he said.
L Capital Asia recently headed a consortium to invest $200 million in China's Trendy International Group, valuing the family-run fashion company at about $2 billion.
Thakran said expansion of the company into Hong Kong, Macau, Taiwan and the emerging markets of Southeast Asia was part of the investment plan, but the need to protect the brand on its home turf was also a significant part of the deal.
"International expansion is really secondary to the whole play," he said. "The primary purpose is to protect the mainland market, protect market share, build brand equity further, be ready to take on this competition."
Thakran said, the bulk of L Capital's investment was going to China, where the firm saw continued strong growth, and was searching for deals in the garment and liquor sectors.
L Capital's current fund for Asia is $650 million, but Thakran said he expected it to invest about $1 billion in total, since the firm regularly went into deals with co-investors.
He said the fund was already working on a number of deals, including in the retail and liquor sectors, and while China was its primary focus, it was also interested in India.
"We are also looking at a fairly large garment maker for international brands," Thakran said. "We are looking at that because it is part of the value chain we are trying to build."
Thakran, who also sees Southeast Asia as a potential new market for its Chinese brands, did not identify companies the fund is targeting.
L Capital recently bought an 8 per cent stake in unlisted Indian ethnic wear chain Fabindia, sources told Reuters on Wednesday.
Asia has become "a focus for growth" as the US and European markets are not doing very well and many brands are coming to the region, in particular China, he added.
LVMH reported a higher-than-expected full-year operating profit earlier this month and said the outlook for 2012 was excellent, in part due to rapid growth in Asia.
The French fund last year bought a 25.5 per cent stake in India's Genesis Luxury Fashion Pvt Ltd, which distributes global luxury brands, mainly apparel and accessories.
L Capital Asia has also invested in Ming Fung Jewellery Group Ltd (0860.HK) and Emperor Watch & Jewellery Ltd (0887.HK) in Hong Kong, and luxury watch retailer Sincere Watch and shoe brand Charles & Keith in Singapore.