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China's hunger for safe food attracts US$50b investment fund

Hong Kong

HILLHOUSE Capital Group, an early backer of tech giant Tencent Holdings Ltd, is now seeking to sate China's hunger for safe foods.

The US$50 billion investment fund has teamed up with San Francisco-based private equity firm VMG Partners to invest in emerging consumer brands and help them expand globally, especially in China, where increasingly wealthy shoppers are looking for more reliable products following a series of tainted-food scandals. The two firms have pledged as much as US$100 million each to the partnership.

The first investment under the new agreement is Little Freddie, an organic baby food and snack maker founded by a husband-and-wife in Hong Kong, the companies said in a statement on Tuesday. They have previously jointly invested in a Californian craft beer maker, a dietary-supplement firm and a pet food brand.

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"We know a lot about retail, we know a lot about Asian consumers," Shen Haoyu, a San Francisco-based partner at Hillhouse, said. "The founders of these companies have global ambitions. That's how and where Hillhouse can bring value to the table."

Hillhouse, founded by Zhang Lei in 2005 with US$20 million from Yale University's endowment fund, earlier this year raised US$10.6 billion for its third and largest buyout fund. The firm, which has offices in Hong Kong, Beijing and Singapore, can also use its connections and expertise gained through backing Chinese technology and e-commerce companies to tap the world's most-populous nation.

Shanghai Tap Room Stone Brewing, the craft beer maker, has opened a tap room in Shanghai and is looking to sell on Alibaba Group Holding Ltd's Tmall, and JD.com Inc's online platform. Little Freddie and Solid Gold, the pet-food maker, are already available on the two e-commerce sites. Hillhouse was also an early investor in JD.com.

VMG, which manages about US$2 billion, has backed consumer brands including personal-care products maker Babyganics, later acquired by SC Johnson & Son Inc; dog treats company Waggin' Train, which was sold to Nestle SA; and baked fruit and vegetable snacks maker Bare Foods Co, now part of PepsiCo Inc.

The firm makes investments ranging from US$10 million to US$100 million and helps the brands grow for the next three to five years, said Mike Mauze, a partner at VMG.

Mr Mauze and Mr Shen see healthy baby food, low-sugar products and the personal-care market as areas for potential growth.

"The brands we're looking for have developed a very passionate consumer base," Mr Mauze added. "That base may be small when we're first getting involved with the business, but we have to believe that passionate consumer bases can grow through better exposure of the brand, better distribution and better marketing." BLOOMBERG