HONG KONG  - A recently created buyout fund is reinventing an old trick. Two of ZZ Capital International’s top dealmakers are leaving the troubled Hong Kong private equity firm and resurrecting its only major transaction at their new shop. That puts a fresh spin on “pass-the-parcel” deals.

ZZ Capital International launched with a bang in 2016. A unit of Chinese tycoon Xie Zhikun’s Zhongzhi Enterprise Group, it made hires from the likes of Bain Capital and Morgan Stanley . Michael Cho, the then-chief executive, told The Wall Street Journal he wanted to challenge the world’s largest private equity firms, using billions of dollars provided by Xie.

But the Hong Kong-listed group has suffered as Beijing has cracked down on foreign deals and tightened currency controls. In February, the company said its global investment team was focused on finding offshore funding for existing projects, and had slowed down the hunt for new targets. Cho has left, and the group’s only major deal, a roughly $800 million buyout of U.S. energy index provider Alerian, dragged on for almost a year without closing.

Alerian now seems to have found another home, according to an announcement late on Tuesday in New York. This is none other than Aretex Capital Partners, which was set up this year by Sergio D’Angelo and Andrew Feller, ZZ Capital International’s heads of Europe and North America, respectively. The pair will leave their old outfit once the deal closes, and the new enterprise is independent from the Hong Kong firm, says a person familiar with the matter.

Buyout firms frequently play pass the parcel, trading companies between each other, and even in some cases revisiting previous investments. But this substitution of one buyer for another, fronted by the same people, is very unusual. Setting up a new vehicle and securing backers is a big task too – so it’s impressive that D’Angelo and Feller have done this before giving up the day job. In a different way than expected, ZZ Capital International is breaking new ground after all.

CONTEXT NEWS

- Aretex Capital Partners, a new private equity firm, said on May 22 it had agreed to buy U.S. index provider Alerian.

- Hong Kong-based buyout firm ZZ Capital International, part of Chinese businessman Xie Zhikun’s Beijing-based asset manager Zhongzhi Enterprise Group, agreed to buy Alerian in July, in a deal valued at up to $812 million. However, in April Reuters reported that ZZ Capital International was attempting to restructure the deal after missing two deadlines to close it.

- Bloomberg reported in January the Hong Kong firm was preparing to scale back dramatically, and some senior executives were negotiating severance packages. The executives were told they would have access to nearly $5 billion for acquisitions over three years, but were set to leave without completing a single major deal, the report added.

- Aretex said it was launched this year by Sergio D’Angelo and Andrew Feller, who joined ZZ Capital International in 2016 as heads of Europe and North America, respectively. The firm has offices in New York and London, and focuses on investments in North America and Europe. Both executives are still listed on LinkedIn as working at ZZ Capital International.

- Alerian develops and maintains indexes tracking energy infrastructure. It will be the first investment by Aretex Capital Partners Fund, the statement added.

(Editing by Quentin Webb and Katrina Hamlin)

© Reuters News 2018