Private Equity in China

The private equity in China is a very common and wholesome topic of discussion in the global financial market. In spite of a lot of complications in the political and economic front, the market for private equity in China has remained very active but gradually it is facing a lot of limitations.

However, it is important to understand the firms operating in this field in the Chinese economy face a lot of challenges due to the downfall of stock valuation and the reluctance of foreign investors to invest in Chinese assets. The shrinking of China’s tech market has also added to the negative situation.

First of all, the private equity market in China is one of the emerging markets in the world. It has been developing during the last decade. However, as a foreigner, it would be nearly impossible to break into because the Chinese Private equity market is not only the local market. It's hyper-local. And Private Equity firms mainly concentrate on local funds.

However, there are also international funds. But if you try to compare local and international funds, there is a 100% dfference between the two. In the case of local funds, the team is huge. You can see that more than 100 people are working in one local fund. As a result, the pay is comparatively lower.

On the other hand, international funds recruit small teams, and play is much higher. However, local funds close many deals, and international funds have a hard time closing any deals.

Top Private Equity firms concentrate on diversified deals because the industries in China are very much diversified. You will find every industry in China – from retail to manufacturing, IT to healthcare, and a state-owned enterprise to the construction industry. You will also find industries like infrastructure, clean-tech, software, energy, etc.

So, in a nutshell, if you are working in China's PE firm, make sure it is a local fund., you would have a hard time closing anything, which can ultimately hurt your resume Otherwise. In local funds, you will have no structured training, but you will close more deals, which will help you pump up your resume for prospects.

If you would like to build a career in private equity in China, what would be your options? What would be the private equity market like? How much salary can you expect? Would you have any exit opportunities? How easy is it to cross borders and make your mark in China as a foreigner? If these sorts of questions fill your mind and you’re getting confused, this is the article you should read. We will try to investigate all of the above questions and find some concrete answers.

As you already know, Chinese private equity firms (local funds) are very focused on local funds, and they have a set of services they offer to their very local clients. Have a look at the service orientation and the services offered –

• Focus: As local funds, the primary aim is to close as many funds as possible. The target market is state-owned enterprises (SOEs) and other private companies in different industries. They also focus on cross-border deals, but the orientation is far less than the local funds.
• Three important factors: Chinese private equity firms don’t invest in all companies. They first select and see whether the companies they aim to invest in have three main features: whether these companies have long-term growth potential or not; second, whether these companies can provide sustainable competitive advantages or not; third, whether these companies have high-caliber management teams or not. After due diligence, Chinese private equity firms decide to invest in these companies if they find these three factors.
• Services: In private equity firms in China, the major deals revolve around fundraising, mergers & acquisitions, and advisory. Moreover, these private equity firms also help portfolio companies create ties with big-shot industry leaders. They also help restructuring and manage IPOs for Chinese enterprises and offer direct investment services.
• High-caliber management teams: As the approach of working in private equity in the emerging market is much different than the developed market, the management team in these private equity firms has a set of skills that are not very structured yet have great value. They should know about company life cycles, how things work in the Chinese market, transaction structures, and ownership structures to handle restructuring, IPOs, M & M&As, and direct investments.

According to China Venture Capital and Private Equity Association (CVCA), here’s a list of top private equity firms which operate in China and as a local PE professional, you can target these private equity firms for future employment –

• Accel Partners
• Ancient Jade Capital Management Co., Ltd.
• Apax Partners Hong Kong Limited
• Ascendant Capital Partners (Asia) Ltd.
• Asia Alternatives Advisor Hong Kong Limited
• Bank of China Group Investment Limited
• Baring Private Equity Asia
• Blackstone Group (Hong Kong) Limited
• Boyalife Group Limited
• Boyu Capital
• Capital Today Group
• CDH Investments
• CDIB Capital (International) Corporation
• CDPQ China
• Cerberus Beijing Advisors Limited
• Chengwei Capital
• China Post Life Insurance Co. Ltd.
• China Reinsurance Asset Management Co. Ltd.
• CITIC Capital Holdings Limited
• CITIC Private Equity Funds Management Co., Ltd.
• Coller Capital
• CPP Investment Board Asia Inc.
• Darby Asia Investors (HK) Limited
• DST Investment Management Ltd.
• DT Capital Management Company Limited
• Fountainvest Partners (Asia) Limited
• GIC Special Investments (Beijing) Co. Ltd.
• Goldman Sachs (Asia) LLC.
• GoldStone Investment Co., Ltd.
• Gopher Asset Management Co. Ltd.
• Haitong International Securities Company Limited
• HarbourVest Investment Consulting (Beijing) Company Limited
• Hillhouse Capital Management
• Hony Capital
• Hubei Yangtze River Economic Belt Industry Fund Management Co., Ltd.
• IDG Capital Partners
• JAFCO Asia
• Jiuzhou Venture
• KKR
• KPCB China
• Legend Capital
• Linqi (Beijing) Asset Management Co., Ltd.
• Magic Stone Alternative Investment
• Maison Capital
• NewQuest Capital Partners
• Northern Light Venture Capital
• Ontario Teachers’ Pension Plan Board
• Oriza FoFs
• PAG
• Primavera Capital Limited
• Qiming Venture Partners
• SDIC Unity Capital Co., Ltd.
• SINO IC Capital Co., Ltd.
• StepStone Group
• SVB Financial Group
• Temasek
• The Carlyle Group
• TPG
• VI Ventures
• Warburg Pincus Asia LLC

It is noteworthy that the firms which have entered China from other countries are not able to do business in a very profitable manner because the Chinese government wants to encourage the domestic private equity firms to establish themselves and expand their own customer base, rather than giving that chance to the foreign companies.

An important reason to boost domestic private equity firms in China is that they are able to easily connect with the country citizens easily and also have close involvement at the political levels. This proves very advantageous while closing and executing financial deals. Some international firms have definitely been successful in grabbing a good part of the market share, but quite a number of them have not been able to do so.

The recruitment process is what the actual crux of the matter is. Because from this section, you will know how you can get into Private Equity in China.

• If you’re a foreigner: If you're a foreigner and think that China is a great market for working and growing your career in PE, think twice. It may not be the case. If you're Chinese and went to the US or UK for higher education, you can go back to China and join a PE firm because you would be considered a local only. But if you are born and brought up elsewhere and are trying to find your ground in the Chinese Private Equity market, it would be very tough for you. First of all, you will get little or no opportunity in China unless you know Mandarin at a native level. Second, you would be surprised to know that only 10-15 foreigners have worked in the entire Chinese PE industry. Now, you have two options. First, if you want to settle in China for a long time, you can learn Mandarin and work your way out. Second, suppose your dream is to return to the US or UK PE market in 5-6 years. In that case, you better not go for Private Equity in China because the structure and working style are completely different in developed and developing countries. You wouldn't be able to add too much value if you leave China and join any US or UK Private equity firm in the future.
• Experience: If you’re a native Chinese and have experience in finance roles, you would be able to get into Private Equity in China easily. So, instead of wasting any time, try getting some hands-on experience. You can also go for two-three internships in PE firms. If you don’t manage to get into PE firms as an intern, work in finance departments. The idea is to show your potential employer that you have hands-on experience in the finance department.
• Networking: Networking is required a lot more than you think. You need to play your cards and find creative ways to network with people. You should attend every conference the PE firms conduct, meet every person who comes to the conference to generate leads, and cold-call anyone associated with a PE firm in China for at least a few years. The idea is to get an interview for an internship position or a full-time opportunity.
• Interviews: You need to be good with team-management analysis because you will be using this to help find out the right industries to invest in. Coming back to the interview, there are two types of interviews you would face. First, there is a type of interview just taken for interns. This type of interview is usually one round. And you would be either sitting with the MD of the PE firm or with the VP. And depending on your experience and knowledge, you will be either chosen for internship roles or shown the front door. The second type of interview is for full-time opportunities where you will be going through 3-4 rounds, and most of the questions would be technical. You will be asked questions on valuation, DCF analysis, accounting, etc. You can also have a look at the top Private Equity Interview Questions.
• Trust: In Private Equity in China, trust is the most important thing. What matters most here are the relationship and the trust between the clients and the PE firms! Legally binding contracts have less value than a person promising to deliver something. So while giving interviews, you should keep this thing in mind.
• Political Connection – Connections help when entering into financial careers. In this case, a good level of political or government connection is a guide to success in entering into this field and growing within the job environment because the government often takes enormous decisions in the financial sector without any prior warning or news.
• Language – The language may become a barrier in case of recruitment. It is given that a citizen of the county who have strong native Chinese language skills will have a far greater chance of being successful in their career in private equity.

Thus, the above are essential criteria for entering the country's private equity workforce.

A few things are important in the Chinese Private equity market. First of all, if you want to get into Private Equity in China, you don't need to have prior experience in investment banking (which is mandatory in a few regions/few firms in countries like the US, the UK, etc.).

Second, you will be working more in local firms and less in international firms. Because in local firms, you would have a lot more funds to work on (at the same time, the number of team members is also huge), and in foreign firms, you wouldn’t know what to close because there wouldn’t be any.

Chinese private equity firms prefer local PE professionals because local entrepreneurs don’t open themselves to foreign professionals. These local professionals can easily get connected to the local business people and convince them for more connections and meetings, which results in the closure of far more deals.

If you plan to go to the US or UK in the future, it's better not to work in China because the experience in an emerging market is much different from the experience in a developed market. After working 5-6 years in Private Equity in China, if you would like to switch to the US or UK, it would be quite difficult for you.

As mentioned before, local firms pay much less than international firms. According to Mergers & Inquisitions, local private equity firms in China pay around US $90,000 per annum, which is much less than the salary of international firms.

In international firms, private equity associates get around US $150,000 to $250,000 per annum.

There is a specific thing about Private Equity in China. Other than senior partners or MDs, no one gets carried interest, which has been one of the most significant components of the salary of PE professionals worldwide.

Moreover, in China, the tax rate is much higher. In Beijing and Shanghai, the tax rate is around 30-40%, and in Hong Kong, it is 15%. In the last ten years, Beijing and Shanghai have become much more expensive, and that’s why living under the US $90,000 per annum is not an easy thing.

If you plan to work in private equity in China but, after 5-6 years, want to go back to the US or the UK, there is an exit route you can follow.

You can work in Private Equity in China for some time (if you get an opportunity, which is very hard to come by). And then, after a few years, you can quit and shift to investment banking. Investment banking is very strong in the Chinese market. So you can shift to investment banking in China and then find a way to go back to the US or the UK in a higher position if you want.

Normally, people who work in PE (local professionals) don’t quit private equity. If they do, there are two options – investment banking and venture capital.

However, professional may also go for an MBA, private equity in a different country, or enter into venture capital field, portfolio management or hedge funds. They can even think of starting their own business. But role of hedge funds are more prevalent outside China, especially in Hong Kong. People also leave private equity to join Securities Regulatory Commission (SEC).

As a foreigner, it’s better that you don't try to get into Private Equity in China unless you have to get into it for other reasons. The private equity market in China is not as good as investment banking. So even if you work in PE for some time as a foreigner, it’s better to shift into investment banking for better prospects.

This has been a guide to what is Private Equity In China. We explain the list of top firms along with services offered, recruitment, culture & salary. You may also look at the following article to learn more about Private Equity.

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