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Fundraising, Private Equity, Special Situations

JPMorgan Executive Zili Shao Departs To Start New Distressed Debt Fund

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Zili Shao (pictured), J.P. Morgan’s vice chairman of Asia Pacific, has left the bank to start a new distressed debt investment firm to capitalize on an expected expansion of China’s non-performing loans.

Shao, who spent ten years at J.P. Morgan previously as chairman and CEO of China, is teaming up with some strong state-owned partners to start the new fund, named Shanghai Jinpu Lingyue Investment Management, according to Chinese media reports citing insiders.

The new venture aims to raise several billion RMB for its first special opportunities fund, with State-owned conglomerate Sinochem Group and Shanghai International Group, as well as A-share listed First Capital Securities, as the fund’s cornerstone investors.

The fund will invest in non-performing loans, special situations, buyout and turn-around opportunities, as the country’s banks and companies are expected to encounter greater financial challenges after an unprecedented credit boom after the global financial crisis.

China’s non-performing loan and assets have reached a record level of around RMB1 trillion (US$147 billion) and will keep expanding at around 20% annually for the next three to five years, according to the reports.

China’s four state-owned “bad banks”, including China Huarong Asset Management, China Orient Asset Management, China Great Wall Asset Management Corporation and China Cinda Asset Management, are the biggest players in the sector. There are also many regional and local asset management firms established by local governments to handle local bad loans.

An increasing number of private investment firms and foreign distressed debt managers have entered the industry in recent years. At the end of last year, China was viewed as the most attractive distressed debt market in Asia Pacific, according to a PwC survey. Last October, Beijing-based distressed asset manager DCL Investments, a spin-out from China-focused distressed debt firm Shoreline Capital, raised over RMB3.7 billion (US$500 million) for its debut fund.

Oaktree Capital Management, one of the largest distressed debt managers based in Los Angeles, has increased its presence in China over the years. Shao’s entrance is the latest example where highly experienced managers are optimistic about making handsome returns from bad loans.

Before J.P. Morgan, Shao was at law firm Linklaters for 11 years as a managing partner. Before that, he was a solicitor at Mallesons Stephen Jaques and an attorney at BHP Billiton. He started his career in Beijing at CITIC Group as an attorney.

In 2014, Shao stepped down as J.P. Morgan’s head of China to take the role of vice chairman of Asia Pacific after the bank was mired in a scandal, in which it was investigated on how it hired the children of Chinese leaders in order to get high profile IPO mandates.

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