CDH: China is on a buyout learning curve

Private equity in China is slowly shifting away from growth capital towards a developing buyout model, according to Wu Shangzhi, the founder and chairman of one of the country’s oldest private equity firms.

“China buyouts are evolving – how they will take their final shape has yet to be seen. But we are all on the learning curve and climbing that learning curve fast,” Wu told Private Equity International.

Industry insiders tell PEI that buyouts in China are not necessarily the same as in the West where financial engineering plays a major role. In China (as in the rest of Asia), private equity firms work alongside the manager or entrepreneur to grow the business, which plays very well to the growth-capital mindset and the importance of building relationships.

CDH was an early mover in Chinese private equity, having spun out from investment bank China International Capital Corporation in 2002. Wu set it up along with five other founding partners, all of whom had worked together in CICC’s direct investment department since 1995.

When asked how CDH’s team has responded to this new norm, Wu said CDH has begun the transition internally over the past five years by adapting the skillsets needed to handle large complex transactions that involve control, financing, leverage and re-listing and/or other exits.

The firm has already executed a few buyout and control transactions but the market is still at an early stage of maturity, Wu says. This is why while he expects more than half of the capital raised for its next fund to be in these deals, the firm will continue to make minority growth investments.

The full interview with Wu Shangzhi will be published soon on PEI.