Global investment firm Sycamore Ventures is launching a $1 billion Chinese "green investment" fund with a difference: the central government is coming on board as a partner. Beijing will not only put $100 million into the China GreenStar fund, a growth capital fund with a focus on energy and the environment. More importantly, it will help Sycamore to navigate China's treacherous regulatory waters.

"One of the reasons why the fund is unique is that it definitely has a government element to it," John Whitman, a managing partner of Sycamore Ventures, said in an interview.

Sycamore, with offices in the United States, China, India and Singapore, has teamed up with an industry association under the auspices of the politically powerful State-owned Assets and Supervision and Administration Commission.

The goal of the agency -- the China Association of Resources Comprehensive Utilization (CARCU) -- is to promote energy saving, environmental protection and more efficient use of resources.

It has 800 members and is headed by the chairman of Aluminium Corp of China, Xiao Yaqin.

Xiao said in a statement that CARCU hopes Sycamore Ventures' strong track record in nurturing start-ups will speed the development of China's environmental sector.

CARCU has yet to decide which of its members -- who include regulatory bodies and scientific research institutes as well as enterprises -- will put up the $100 million, Whitman said.

For Sycamore, the political connection to CARCU will help it to identify investment opportunities and then eventually exit from those investments -- on current thinking, by floating the companies outside China.

"We're getting a very strong endorsement, not only in terms of deal flow but also in terms of regulatory support," said Stephen Chiao, a Sycamore Ventures partner.

Sycamore has yet to raise its targeted $900 million from institutional investors, let alone win authorisation from China's foreign-exchange regulator to bring the money onshore at a time when Beijing is battling to hold down currency inflows.

But Chiao said the fund has already identified its first investments -- a company that has developed a special wastewater treatment compound and a pre-IPO stake in a water recycling firm.

Whitman said the attraction for China was not only the chance to make a profit; it was also to help the development of its fledgling venture capital and private equity industries by training a new cohort of managers with experience of such investing.

The fund would also serve to expose regulatory obstacles to attracting foreign investment, Whitman said.

Sycamore is aiming for an internal rate of return from the fund in the low to mid 20 percent range, he added. (Editing by Louise Ireland)