BEIJING - The Beijing municipality signed an agreement on Thursday to invest in Goldman Sachs Group Inc's yuan-denominated private equity (PE) fund, which reportedly aims to raise 5 billion yuan ($770 million).

The State-owned Capital Operation and Management Center, a unit of Beijing municipality, is responsible for the investment, said a spokesman with Beijing Municipal Bureau of Financial Work, who declined to be named.

The spokesman added that similar cooperation with Morgan Stanley will come next week.

Goldman Sachs plans to raise up to 5 billion yuan for the Chinese PE fund, according to Reuters.

Goldman Sachs' Beijing press office declined to comment.

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Last year, the Carlyle Group launched a yuan-denominated fund with a target size of 5 billion yuan with Beijing municipality and had received more than 2.4 billion yuan by the end of July 2010.

Private equity firms such as Blackstone Group and Texas Pacific Group also launched yuan-denominated funds with the Shanghai municipality to tap into the emerging markets.

Yi Jigang, president at Beijing-based Dongfang Jiyi Asset Management Co, told China Daily that foreign investors have high expectations for the Chinese economy, and that setting up yuan-denominated funds is increasingly becoming popular.

"Yuan-denominated funds allow the PEs to access deals more easily and face less regulatory scrutiny," Yi said. "Besides, they can raise capital from wealthy Chinese investors who aim for high returns."

According to China Venture Group, a capital market research company, nine out of 13 PE funds completing capital collection this month are yuan-denominated funds, signaling a boom in yuan-denominated funds. The current investment raised by PE funds outstripped the amount raised by previous PE funds, representing investors' bullish outlook on the Chinese market.

Yi said the alternative investment channel for overseas investors interested in the Chinese market is to invest via offshore dollar-denominated funds.

However, that method has proved to be complicated because of China's policy on currency controls.

A trial of the country's new Qualified Foreign Limited Partnerships policy, which allows a certain number of foreign PE funds to make equity investments in China after exchange settlement, is proving to be popular.

The Shanghai municipality is vetting a second batch of applicants for its pilot scheme that allows foreign investors to invest in yuan-denominated funds in China for the first time, after granting licenses to Blackstone, Carlyle Group and DT Capital Partners, Reuters said.

Bao Chang contributed to this story.