Even as tensions between Beijing and the west increase, Goldman Sachs has utilised a fund established with Chinese state funds to purchase a number of US and UK businesses, including one with a cyber security business that offers services to the British government.
According to numerous sources with firsthand knowledge of the fund’s operations, the Wall Street bank has closed seven acquisitions with capital from a $2.5 billion private equity “partnership fund” it established in 2017 with the sovereign wealth fund China Investment Corporation.
A start-up that watches global supply chains, a cloud computing consultant, a business that conducts drug tests, and a company that makes systems for artificial intelligence, drones, and electric vehicle batteries are among the companies involved in the acquisitions. Despite the bank’s announcement that it had invested in the businesses, it omitted to mention that the China fund at least partially funded the transactions.
The transactions show how, as western governments have enhanced their scrutiny of foreign direct investment, particularly from China, private equity funds have assisted sovereign wealth funds in acquiring indirect ownership in businesses in important areas.
During Donald Trump’s state visit to Beijing in 2017, the bank’s then-CEO Lloyd Blankfein introduced the China-US Industrial Cooperation Partnership Fund, stating that it would help allay Washington’s worries about a trade imbalance between the US and China by investing Chinese capital in US businesses.
According to the bank, CIC would be a “anchor investor” in the fund and actively assist the companies it purchased in growing in China.
Goldman has increased the fund’s operations despite the increasingly tense relations between Beijing and the west in recent years, making four investments in 2021 and one last year.
In order to purchase LRQA, the inspections and cyber division of UK maritime classifications company Lloyd’s Register, in 2021, Goldman utilised the cooperation fund with CIC. The aerospace, defence, energy, and healthcare sectors are among those in which LRQA provides inspection and certification services.
On its website, the cyber security firm Nettitude claims to be an authorised service provider for the UK government and to support “government and defence organisations around the world.” Its job involves “ethical hacking,” in which its employees seek to break into the systems of customers to determine their security flaws.
The Goldman-CIC fund invested with other private funds that the bank administers in the LRQA sale and other transactions, therefore the financial contribution of the Chinese government was minimal.
However, compared to average investors in most buyout funds, the sovereign wealth fund has a closer relationship with the businesses it acquires.
A LRQA spokeswoman stated, “China accounts for 40% of the global certification market, and we are currently under-represented there. We are seeking to address this, in part, with assistance from the [Goldman-CIC] fund.” He claimed Nettitude had no operations in China, no aspirations to establish themselves there, and no contact with CIC.
The co-operation fund is a US fund managed by a US manager, and it is managed to be in accordance with all laws and regulations, according to a statement from Goldman.It keeps making investments in US and international businesses, assisting them in growing their sales into the China market.
Given the “quasi-judicial” nature of its investment screening powers, a UK official claimed the British government was unable to comment on any individual purchases. However, they warned, “The government will not hesitate to use our powers to protect national security where we identify concerns.”
According to its website, the fund has also invested in US firms such as Cprime, which provides cloud computing advice, Parexel, which conducts drug tests, Project44, a start-up that tracks global supply chains, Aptos, a retail technology group, Visual Comfort & Co., which manufactures lighting, and Boyd Corporation, a California-based company that makes cooling systems used for machine learning and in drones.
In 2021, the founder of Project44 revealed the China fund investment to WSJ Pro, and in 2019, Reuters published the Boyd investment. The other five companies’ association with the fund had not before been disclosed. Except for LRQA, none of the seven companies responded to calls for comment.
In the private equity sector, the term “limited partner advisory committee” refers to a group of sizeable investors in a fund who can be called for advice but do not make investment decisions. CIC is also a member of this committee.
Please make use of the sharing options available through the share button located at the top or side of articles. Copying articles to distribute to others is against FT.com’s terms of service and copyright policy. To purchase more rights, send an email to [email protected]. Using the gift article service, subscribers may share up to 10 or 20 articles each month. You can learn more at https://www.ft.com/tour.https://www.ft.com/content/792fae47-8e2f-4363-99e9-176b33ccc09aThe Minnesota State Board of Investment, the United States’ largest pension manager and many US-based charity foundations joined the oldest insurer in Taiwan, Taiwan Life, in contributing funds to the fund. Attempts to reach CIC and Taiwan Life for comment were unsuccessful. ATP and the Minnesota State Board of Investment both acknowledged that they had invested in the fund.
At the end of 2021, CIC, which was established in 2007 to invest Chinese state funds, had $1.35 trillion in assets. According to its website, alternative assets like private equity made up over half of its global portfolio.
The Goldman fund was one of a number of so-called bilateral funds that CIC established with global investment organisations in order to negotiate deals in their home nations and broaden its exposure to American businesses.