Goldman Sachs used a fund created with Chinese state funds to purchase a number of US and UK businesses, including one that has a cyber-security business and provides services to British government. This is happening as tensions between Beijing and western countries are rising.
According to people who have direct knowledge of its operations, the Wall Street bank struck seven deals with cash from the $2.5bn “partnership fund” for private equity it established in 2017 with China Investment Corporation.
These deals include a company that tracks global supply chain, a consulting firm that provides cloud computing advice, a drug-testing company, and a producer of systems for artificial intelligence (AI), drones, and electric vehicle batteries. The bank said it invested in these companies but did not mention that the deals were at least partially financed by the China Fund.
These deals show how private equity funds helped sovereign wealth funds to build indirect holdings in key sectors, as Western governments increased their scrutiny of foreign direct investments, especially from China.
Lloyd Blankfein, the bank’s former chief executive, launched the China-US Industrial Cooperation Partnership Fund in 2017 during Donald Trump’s visit to Beijing. Blankfein said that the fund would address Washington’s concern about a trade deficit between the US and China through the investment of Chinese capital into American companies.
The bank stated that CIC will be an “anchor” investor in the fund, and will play an active part in helping the companies they bought expand in China.
Goldman increased the fund’s activities despite the deteriorating relations between Beijing, China and the West in recent years. The fund made four investments in 2021, and one in 2018.
Goldman will use the partnership fund it has with CIC in 2021 to finance the purchase of LRQA. This is the UK classifications group Lloyd’s Register’s inspections and cybersecurity unit. LRQA provides inspection and certification services to the aerospace, defense, energy, healthcare and other industries.
Nettitude is a cyber security company that, according to its website, provides services for the UK Government and “strengthens government and defense organisations around the world”. The company’s “ethical hackers” hack client systems in order to determine their vulnerabilities.
The Chinese government’s involvement in the LRQA deal, and other deals, was minimal.
The sovereign wealth fund has a more intimate relationship with the companies that it purchases than most investors in buyout funds.
A spokesman for LRQA said that “China represents 40% of the global market for certification and we are under-represented in this country. We are working to remedy this situation, partly with the help of the [Goldman CIC] fund”. Nettitude has no business in China, no plans to establish there and no contact with CIC.
Goldman stated in a press release: “The cooperation fund is an US fund managed by a US manager and is managed in compliance with all laws. . . It continues to make investments in US companies and other global firms, helping them to increase their sales on the China market.
A UK official stated that the British government was unable to comment on specific acquisitions due to the “quasijudicial” nature its investment screening powers. They added that “the government will not hesitate to utilize our powers to safeguard national security when we identify concerns.”
According to the fund’s website, it has also invested into US companies Cprime (which advises on cloud computing), Parexel (a drug testing company), Project44 (a start-up which tracks global supply chains), Aptos (a retail technology company), Visual Comfort & Co., a lighting firm, and Boyd Corporation.
Project44’s founder revealed the China fund investment in 2021 to WSJ Pro, and Reuters announced the Boyd Investment in 2019. The involvement of the fund with the five other companies was not made public before. LRQA was the only company that responded to a request for comment.
CIC also sits on the “limited partner advisory council” of the fund, a private equity term for a group that includes significant investors who can provide advice but do not make any investment decisions.
Taiwan Life, Denmark’s ATP pension scheme, the Minnesota State Board of Investment, and several US charitable foundations have also contributed money to the fund. CIC and Taiwan Life declined to comment on a request. Minnesota State Board of Investments and ATP confirmed that they were investors.
CIC was founded in 2007 as a vehicle for investing Chinese state funds. At the end of 2021, it had assets worth $1.35tn. According to its website, almost half of CIC’s global portfolio is invested in alternative assets like private equity.
CIC established the Goldman Sachs Fund as one of many “bilateral” funds with international investment groups in order to make deals within their own countries. This increased its exposure to Western companies.
Goldman has maintained its relationship with CIC. According to CIC , the bank’s CEO David Solomon met CIC executive vice-president Qi Bin in March and its chair Peng Chun.