China approves first private wine equity fund

Aug. 24 – China’s first privately offered wine equity fund, the Dinghong Fund, has recently received approval from the Department of Investment Fund Supervision, according to reports. The fund plans to raise RMB1 billion (US$156 million), and is expected to start by the end of September with a first tranche of RMB200 million.

The closed-end fund, which registered in Beijing, will invest in two main wine producing areas in France, Bordeaux and Burgundy, and 60 percent of the fund will be in actuals while 40 percent will be in futures.

According to its sales documents, the fund – which expects to deliver annual returns of about 15 percent – has set up a threshold of RMB1 million for individuals and RMB10 million for institutions. The fund has a lock-up period of five years.

President of Pacific Investment Management Co. Ling Zhijun, together with Zhang Yanzhi, China representative of Establissemets Jean-Pierre Moueix as well as a renowned wine maker, established the Dinghong Fund. Softbank China Venture Capital Fund CEO Xue Cunhe will be the fund’s financial advisor.

The latest report by International Wine and Spirits Research (IWSR), which was made during 2008-2010 and takes in 28 wine and spirits producing areas and 114 consumer markets, showed that China is now the world’s eighth largest wine consumer. In 2010, the world’s top five wine-consuming countries were the United States, the United Kingdom, France, Italy, and Argentina. The Dinghong Fund predicts that China will overtake France over the next five years to become third on the list. And in seven years, China will become the world’s second largest wine market after the United States.

Some analysts showed concern about people’s outpouring of interest in China’s wine market, saying it might cause a Bordeaux bubble which will reduce the quality over time.

Ling Zhijun said that her fund will focus on improving Chinese people’s appreciation of fine wine, not just making good investments.