Frank Tang, the head of China private equity shop FountainVest Partners, told an inspirational story Thursday to the board of the San Diego County Employees’ Retirement Association, where he was trying to get a commitment to his firm’s second fund.
Private Equity International watched a video of Tang’s investment presentation last week broadcast through SDCERA’s website. In response to some board concerns about the risks of China reversing course from its path of open markets, Tang said he is confident the country will “never go back” to the days when the markets were closed.
Tang said he got his first bed when he was 15, having spent his young life sleeping on the floor of a cramped apartment with his family.
Under the closed economy, Tang’s family was issued coupons to buy necessities like cooking oil and rice. Tang, as late as 1990, used to barter his coupons on the black market to make sure his little brother had enough to eat.
In this environment, people have enjoyed the opening of the market, they've tasted the benefit of being globally integrated and they've seen the rise of an open society armed with Internet and mobile phones and [they're] getting more educated about legal [and] regulatory issues.
He later earned his MBA at Columbia University and lived in New York for four years. He decided to return to China because he saw opportunity in the government’s slow but steady moves to open the economy to foreign investment.
For the growing middle class in China, the days of worrying about having enough to eat are gone, replaced by more developed world concerns like what kind of jewelry to buy, Tang told the board. And that’s a good thing.
“In this environment, people have enjoyed the opening of the market, they’ve tasted the benefit of being globally integrated and they’ve seen the rise of an open society armed with Internet and mobile phones and [they're] getting more educated about legal [and] regulatory issues,” Tang said.
Tang’s brief speech was in response to concerns posed by some members of the pension fund’s board that a commitment to FountainVest’s second fund, which is targeting $1.25 billion, would be too risky. One board member, Dianne Jacob, said she was worried that factors beyond the firm’s control –like geo-political conflict – could lead to the system losing its investment in the fund.
“There’s no way the Chinese people are going to turn back,” Tang said in response.
Ultimately, the board approved a $50 million commitment to the second fund. The firm has lined up a few other big
pension systems like the Washington State Investment Board, an institution in California and a large pension in Canada. The firm expects to collect $900 million for its first close, Tang said.
FountainVest makes growth investments in Chinese companies that focus on the domestic market as a way to tap into the growth of the country’s middle class. Its preferred sectors include retail and consumer, healthcare, leisure, as well as media and education.
The firm raised $950 million for its debut fund in 2008; that fund is about 75 percent invested.
Another concern voiced by several board members was the firm’s increasing of the management fee on Fund II to 2 percent from 1.5 percent in the debut fund.
The fee was increased, Tang said, to help pay for the team’s expansion plans, and also to make up for losses the firm incurs from taking commitments in US dollars, but paying salaries and other expenses in RMB.