By George Chen

HONG KONG, March 2 (Reuters) – A former partner of D.E. Shaw and an ex-Goldman Sachs partner are setting up a new firm to raise about $500 million for a China-focused private equity fund to join the growing competition for deals in the world’s No.2 economy, sources told Reuters on Wednesday.

Meng Liang, a partner and Greater China CEO for D.E. Shaw, one of the world’s largest hedge funds, has resigned from the firm to join hands with Kevin Zhang, a former Goldman Sachs partner who was co-head of its Asian Special Situations Group from 2005 to 2009, to launch their own investment firm, said the sources with knowledge of the matter.

Meng and Zhang, both Yale MBA graduates, received some capital commitment for the new fund from some Chinese entrepreneurs whose companies were invested by Meng and Zhang when they were with D.E. Shaw and Goldman, one source said.

“The private equity industry in China is becoming more rewarding and more mature,” said Poddy Feng, an analyst at industry consultancy China Venture.

“Setting up your own PE fund is now especially attractive for experienced senior professionals and there still seems to be an ample supply of deals in China,” Feng added.