HONG KONG, Oct 29 (Reuters) - Asia-focused investment firm PAG is aiming to raise $9 billion in what would be its fourth and largest buyout fund, people with knowledge of the matter said, adding to the region"s abundant investment dry powder. The Hong Kong-based firm has kicked off fundraising and a first close of the fund is expected by mid-2022, the people said, declining to be identified as the information was confidential. PAG, which manages $45 billion in assets, declined to comment. Roughly two-thirds of its PE portfolio is in China and the new fundraising underscores robust investment interest in the country despite an unprecedented regulatory crackdown on a range of sectors from technology to real estate to private tutoring. The fundraising is also the latest in a slew by Asia-focused private equity firms this year, as investors flush with capital seek better returns amid post-pandemic economic recoveries while taking advantage of low interest rates. PE-backed deals in Asia Pacific (including Japan) for 2021 have already hit an annual record, with $187.6 billion done as of this week, Refinitiv data shows. Funds in Asia are also sitting on an unprecedented $654 billion of unspent capital, a 70% surge from the level at mid-year, according to data provider Preqin. More than 340 funds have raised $143 billion this year, beating 2020"s total amount of $122 billion but below levels of $250 billion or more in 2016-2018, Preqin"s data showed. The average fund size this year, at $416 million, is significantly higher than in the last five years, when levels ranged between $150 million to $230 million. Hillhouse Capital raised $18 billion in the region"s largest fund in August, a few months after KKR & Co Inc (KKR.N) raised $15 billion for its fourth pan-Asia fund, the data showed. Hong Kong-based Baring Private Equity Asia (BPEA) has reached the first close of a new fund targeting $8.5 billion and the final size could be increased to $10 billion, two sources familiar with the matter said. BPEA declined to comment. Other managers targeting bigger funds include China"s Primavera Capital, Boyu Capital and FountainVest Capital Partners, Reuters has reported. read more Led by Chinese dealmaker Weijian Shan, PAG"s PE funds target large-sized control, buyout and structured minority deals in the consumer, technology, healthcare, financial and business services sectors. PAG is planning to list a merged entity of two Chinese industrial gases portfolio companies - Yingde Gases and Shanghai Baosteel Gases offshore, most likely in Hong Kong. Their combined valuation is estimated at more than $10 billion, sources have said. It also recently led a fundraising round for Dalian Wanda Group"s commercial property management unit, investing $2.8 billion ahead of the unit"s Hong Kong listing, sources have said. In March, it bought a controlling stake in Indian financial services firm Edelweiss Wealth Management for $325 million and completed the purchase of Australia-based workspace company Unispace. PAG raised $6 billion with its third fund in 2018 and $3.6 billion with its second fund in 2016. It also raised $525 million for a growth fund earlier this year. Portfolio firms also include U.S. printer maker Lexmark and auto safety products maker Joyson Safety.