Investcorp, the listed Gulf-headquartered investment firm, is on the hunt for discounted healthcare assets in China’s secondary market.

The Bahrain-based manager last week launched a dedicated Chinese healthcare platform that has already acquired minority stakes in two businesses – online healthcare business WeDoctor and specialist medical group Lu Daopei – according to a statement.

“It’s a fund, but of limited size and limited timing, because the fundamental driver is to seek opportunities that are, pricing-wise, dislocated in the market,” Duncan Zheng, a Beijing-headquartered managing director at the firm, told Private Equity International.

“I think 2020 is a great year for people looking for value. These are quick and very targeted, or precise, vehicle-seeking opportunities that present themselves during the pandemic.”

Duncan Zheng Investcorp
Zheng: Discount is a dangerous term

Zheng, who declined to disclose financial information for the China fund, noted that the fund did not have a formal hard-cap.

“Given the strategy that this vehicle wants to find price-discounted opportunities in the market and in this pandemic year, it really depends on the specific number of targets we can find, rather than our own wished number,” he said.

“From a strategic perspective we’re primarily looking at secondary opportunities with sellers willing to transact in this environment who need liquidity.”

In terms of pricing, the concept of a discount can sometimes be dangerous, Zheng cautioned.

“At some point, a discount can turn into a premium if the underlying businesses are doing much worse. I wouldn’t just argue for a discount in terms of percentage versus historical trading or other metrics, but it’s really based on fundamental analysis of the underlying business and sectors.”

The latest fund marks Investcorp’s first solo endeavor in China, having previously only participated through joint venture funds. It jointly manages the 2018-vintage China Everbright New Economy Fund I, which focuses on pre-IPO tech companies, and is seeking $500 million for the Asia Food Brands Private Equity Joint Venture with China Resources, according to PEI data.

In other markets – chiefly the US, Europe and Middle East – Investcorp has traditionally acquired businesses on a deal-by-deal basis through its balance sheet and syndicated the investment to Middle-Eastern investors, and in recent years has also been exploring fund portfolio models.

“The standard procedure for Investcorp is to first be convinced by an opportunity and take the risk by using our own cash,” Zheng said. “And then our colleagues in the Middle East, who do fundraising with our institutional and high-net-worth investors, set up the fund structure.”

Zheng joined Investcorp this year from Chinese healthcare firm Pagoda, according to its website. He previously served as a Berlin-based principal at Triton and as senior advisor to the China Investment Corporation’s global markets department in Beijing.

Investcorp’s China expansion is part of a wider build-out in Asia. Co-chief executive Rishi Kapoor told PEI last year the firm was in the early stages of developing its market strategy for Japan, which could include lifting a team from another firm or acquiring a platform.

South-East Asia could also be an area of focus from its Singapore office, Zheng added.

“We are underinvested in Asia and a lot of our clients are underinvested in Asia, therefore it’s an opportune time for us to be more engaged in Asia,” he said. “South-East Asia is a very natural market for Investcorp – I think culturally there is a reference for our investors into countries such as Indonesia, Malaysia and the Philippines.”