With each company initially providing $90 million, the Fund brings together the strengths of both companies -- Lehman Brothers' global investment banking and private equity experience and capabilities, and IBM's business and operational insight as well as its technology leadership in China. Creation of the Fund marks the first such alliance between IBM and Lehman Brothers anywhere in the world.

The Fund's investments will support the China central government's policy that encourages companies to be innovative in business practices and management as well as in information technology and product development.

Unlike traditional venture capital firms that give early-stage companies money in exchange for an ownership stake, IBM and Lehman will focus on mid-stage to mature, public or private Chinese companies across many industry sectors. In addition to funding, IBM and Lehman will provide management and technology expertise to the companies in which they invest, enabling those companies to keep pace with the quickly evolving Chinese market.

China's GDP was ranked fourth in the world in 2005, and with an economy expected to grow 7.5 percent per year over the next five years, the country is expected to rank third, behind only the U.S. and Japan, by 2010.

China's 11th 5-Year Blue Print (2006-2010), which encourages a company rather than government-driven innovation system, focuses on optimizing and upgrading traditional industries while developing high-tech industries such as information technology, communications, next generation networks, nanotechnology, biotechnology and an IT services sector.

"IBM has been working as an innovation partner to Chinese companies and the Chinese government for a long time," said Henry Chow, chairman and chief executive officer, IBM Greater China Group. "This Fund is an opportunity for us to utilize our experience in China and, as a globally integrated company along with Lehman Brothers' investment management expertise, help facilitate the government's objectives of transforming China's enterprises."

Michael Odrich, Lehman Brothers global head of private equity, said: "Lehman Brothers and IBM are highly committed to China and are excited about the investment opportunities the Fund will have in this dynamic market. The Fund will offer Chinese businesses access to investment capital as well as best practice technology and business strategies from two of the world's most innovative global organizations."

IBM first entered China in 1934 and returned to the country in 1979. IBM China currently has 7,600 employees involved in sales, services, manufacturing and research activities. The China Research lab located in Beijing is one of IBM's eight Research labs worldwide. Established in 1995, it was the first research facility to be located in China by a multinational corporation.

The alliance with Lehman Brothers strengthens IBM's emphasis on helping Chinese companies improve their capabilities by introducing innovative technology and management practices. In the last 18 months, IBM has established partnerships with more than 250 VC-backed start-ups in China, giving them access to IBM technology expertise, routes to market, and joint client engagements. The alliance with Lehman Brothers will provide additional capability to work directly with strategic partner companies.

Lehman Brothers was a pioneer among international investment banks in entering the Chinese market and established its Beijing representative office in 1993. Since then, it has completed many "first-of-its-kind" transactions for Chinese clients, and also is a Qualified Foreign Institutional Investor that invests directly in Chinese domestic shares and bonds. China is an important component of Lehman Brothers' Asia and global strategy. This alliance with IBM is another step by Lehman Brothers toward delivering its full range of expertise to the China market.