The Carlyle Group's latest move as it seeks to gain a stronger foothold in China serves as a reminder that the latent potential the country offers the private equity industry goes far beyond its borders.
As well as the RMB fund the firm has launched with its new strategic partner, Chinese conglomerate Fosun Group, Carlyle announced in a statement that the two firms would “identify co-investment opportunities around the world that have a business nexus to China”.
Carlyle and Fosun are, of course, two among many firms focusing on a ‘China play’ outside the country itself. In fact, a brief look back through the PEI Asia archives shows this is an investment – or post-investment – strategy that has been gaining momentum for some time.
As far away as Europe, it is being seen as more and more crucial by some GPs to have the ability to open doors for their portfolio companies in China.
For instance, in January last year, UK-headquartered Lloyds TSB Development Capital (LDC) opened an office in Hong Kong – it’s first outside Europe – with the primary aim of creating a network of Asian “contacts and capabilities” which would benefit its portfolio of UK companies. China was stated as the main focus area for the firm.
For technology-focused angel investor Andrew Rickman, whose firm Rockley Group last year established a $100 million joint venture fund with Shandong High-Tech Investment Corporation (SDHTIC), China has replaced the US as the go-to market for UK firms.
“From a UK technology company point of view … the question is pretty much ‘how do I get to China’?” he said in an interview last year. “Besides the sophistication of manufacturing technology etc, your money goes further just due to macro-economics and exchange rates – it’s so much more expensive to develop technologies in the West nowadays.”
As Asia’s fastest growing economy (GDP growth was estimated at 8.9 percent for 2009 by the CIA World Factbook), it is only natural that China’s pull is felt most acutely in its home region.
The strength of a company’s existing, or potential, ties to the huge marketplace offered by China’s rampant growth is often used as a rationale for investments in emerging Southeast Asian economies, like Vietnam. However, even in Japan, the region’s most developed economy and an Asian powerhouse in its own right, links to China are more frequently seen as a crucial investment criterion by GPs.
“Questions like ‘Does the investee candidate have a growing business in China?’, ‘Will this product sell well in Asia?’, have become increasingly important in selecting investments,” Joji Takeuchi, CEO and co-founder of Tokyo-based LP advisory firm Brightrust PE Japan, told PEI Asia last December. He added that GPs’ value-add efforts post-transaction often focus on pushing expansion to China and other Asian markets.
Following Carlyle’s agreement with Fosun, it seems apt to recall once more a comment from the firm’s co-founder, David Rubenstein, who described China as being 'at the epicentre' of the private equity world at last November’s Beijing Global Private Equity Forum.
The validity of this comment is reflected not only in the seemingly relentless push from Carlyle and other global investors into the Chinese market, but in the increasingly China-centric actions of private equity firms investing the world over.