May 10 (Bloomberg) -- Goldman Sachs Group Inc. and Morgan Stanley will earn about $1 billion selling stakes in Ping An Insurance (Group) Co., China's second-largest insurer, the biggest profit in the nation from a private equity investment.

The two New York-based securities firms will sell a combined 9.91 percent stake in the insurer for $1.04 billion to HSBC Holdings Inc., Shenzhen-based Ping An said in a statement yesterday. They paid $35 million each for the stock in 1994.

``China has become not a only a venue to put money into, but one to get a return out of as well,'' said Paul Mackintosh, managing editor of the Asian Venture Capital Journal, a Hong Kong- based publication that compiles data on private equity.

Goldman, Morgan Stanley, Newbridge Capital Ltd., Warburg Pincus LLC, and other private equity firms are increasing their investments in China as private companies in the world's fastest- growing major economy seek funding and management advice. China attracted $1.8 billion of venture capital in 2004, eight times more than the previous year, data compiled by Bloomberg show.

Goldman, which raised $8.5 billion for the world's biggest buyout fund last month, plans to invest $3 billion in Chinese companies, Henry Cornell, who runs its Asian private equity investments, told reporters in Beijing on April 20. The fund made a $600 million return on its $35 million investment in Ping An, said Cornell, whose comments were confirmed by Edward Naylor, a Hong Kong-based spokesman at Goldman.

Successful

Morgan Stanley also invested $35 million in Ping An in 1994, according to Asia Venture Capital Journal data. Morgan Stanley spokesman Nick Footitt in Hong Kong declined to comment.

``This has been a very successful investment for us,'' said David Liu, co-head of Morgan Stanley's private equity unit in Asia, in yesterday's statement.

Morgan Stanley, Goldman, BOC International (Holdings) Ltd. and HSBC also shared HK$500.5 million ($64 million) in fees for arranging Ping An's HK$14.3 billion initial public offering last June. The U.S. firms were restricted from selling their shares for one year after the IPO. That lockup expires on June 24, according to Ping An spokesman Jiang Su.

Ping An, which controlled 15 percent of China's $52 billion insurance market in 2004, said the two American companies helped Ping An meet international standards.

``We are grateful for their long-term support and help in improving the company structure, risk management and management competitiveness,'' said Sheng Ruisheng, a spokesman at the insurer.

Board Members

Cornell, Liu and HSBC's Dicky Yip are all non-executive directors on the board of Ping An. The board will meet to discuss changes to its members after the deal receives approval, Ping An's Jiang said.

``Ping An is one of the best-managed companies in China,'' said Credit Suisse First Boston in a research report on May 9.

Goldman's 1999 investment in Kookmin Bank, South Korea's biggest lender, was also profitable. Cornell's fund raised $1.1 billion in 2002 and 2003 selling Kookmin shares at more than double the value of the initial investment.

In Japan, New York-based buyout firm Ripplewood Holding LLV and other investors bought the bankrupt Long Term Credit Bank Ltd. for 121 billion yen ($1.1 billion) in 2000 and reopened it as Shinsei Bank Ltd. later that year. The buyers raised 555 billion yen selling to the public shares equivalent to about two- thirds of the bank's equity. Shinsei's current market value is 781 billion yen.

HSBC will pay HK$13.20 a share for Morgan Stanley and Goldman's 9.91 percent stake in Ping An, raising its holding in the company to 19.9 percent, the maximum allowed under Chinese law.

To contact the reporter for this story: Patricia Cheng in Hong Kong at pcheng9@bloomberg.net

Last Updated: May 9, 2005 22:33 EDT