Former D.E. Shaw, Goldman Partners Form China Fund

A former partner of D.E. Shaw and an ex-Goldman Sachs partner are setting up a new firm to raise about $500 million for a China-focused private equity fund to join the growing competition for deals in the world’s No.2 economy.

Meng Liang, a partner and Greater China CEO for D.E. Shaw, one of the world’s largest hedge funds, has resigned from the firm to join with Kevin Zhang, a former Goldman Sachs partner who was co-head of its Asian Special Situations Group from 2005 to 2009, to launch their own investment firm, according to sources with knowledge of the matter.

Meng and Zhang, both Yale University MBA graduates, received some capital commitment for the new fund from some Chinese entrepreneurs whose companies were invested by Meng and Zhang when they were with D.E. Shaw and Goldman, one source said.

“The private equity industry in China is becoming more rewarding and more mature,” said Poddy Feng, an analyst at industry consultancy China Venture.

“Setting up your own PE fund is now especially attractive for experienced senior professionals and there still seems to be an ample supply of deals in China,” Feng added.

The departure of Meng, who helped D.E. Shaw open its Greater China business out of Hong Kong in 2007, has been internally announced at the firm, said the sources who declined to be identified as they were not authorized to speak to the media.

Some high-profile deals led by Meng for D.E. Shaw included Rongsheng Heavy Industries, China’s top private shipbuilder, which raised $1.8 billion from its Hong Kong IPO late last year, and GCL-Poly Energy, China’s No.1 solar company by market capitalization.

During Zhang’s days at Goldman, he helped the U.S. investment bank invest in China’s top meat processor Shuanghui and Western Mining among other deals—two of the most profitable investments Goldman ever made in China

Meng, a former co-head of China investment banking at J.P. Morgan before he moved to D.E. Shaw, declined to comment when reached by telephone. Zhang, was not immediately available for comment.

Meng was made managing director at J.P. Morgan in 2004 after he helped the firm expand its merger & acquisition advisory business into an industry leader in Asia.

Meng was the first Chinese appointed partner of D.E. Shaw, once the world’s No.4 hedge fund by assets under management.

At Goldman Sachs, Zhang’s former colleague Fred Hu also recently launched his own fund after leaving the firm, according to media reports.

Despite high-flying career at the investment banking and hedge fund industry, many senior industry executives have chosen to open their own outfits since the financial crisis and more money inflows are seen into Asia, in particular China and India.

Reuters recently reported that former Goldman Sachs star trader Morgan Sze was set to launch his $1 billion-plus hedge fund, registering Azentus Capital with the Hong Kong market regulator this week.

—George Chen, Reuters