Lots of people involved with China fundraises are saying the process ranges from extremely difficult to completely stationary. What kinds of conversations are you having with LPs?
We’re fortunate to have a quality, strong set of existing investors – that helps. It’s undoubtedly a challenging time for raising capital for China, and it seems that there’s just been a confluence of factors that have come together to create that situation. We’re in an interesting situation because we are a China-rooted fund, but we are a global platform, so what we’re finding is our value proposition is in greater demand from entrepreneurs.
At the same time, when things get difficult, I think it’s very important to stay in close contact, and it’s very important to communicate in an informed, balanced and authentic way about what’s happening.
And is it possible right now for Chinese GPs to build new LP relationships, or do firms have to very much lean on existing ones at times like this?
I think it’s possible. Relationships take time to build, and so new relationships that are going to [result] in a commitment in a time like this need to have been cultivated already over a significant period of time. There has to be a foundation of trust.
But more than that even, there has to be a deep understanding of – and for some groups, probably a compelling reason – why they would make a commitment to a new manager at that time. And that’s in the face of not just challenges that relate to China, but challenges that relate to the pace of fund managers coming back to market, the denominator effect and the overall competition for capital.
Do you have a sense from speaking to your peers that some China funds won’t get raised as a result of everything that’s happening, including the factors that you’ve just discussed?
I think so. We’re seeing that accentuation of the earlier trend of more capital going to the largest funds and the first cheques – where cheques are being written – going to existing relationships that are performing well. I’m not in the business any more of third-party marketing, but I know and understand that even some re-ups are not happening in certain cases, and I do certainly think this is an opportunity, in some ways, for LPs to start paring from their portfolio [GPs with] borderline performance.
Do you anticipate, given that some of these China concerns seem to be more pronounced in the US, a shift in the composition of LP bases?
Yes, I do expect that over the near to medium term, general partners or private fund managers from China will perhaps see more receptivity from limited partners in geographies other than North America and Western Europe. And in some ways, this is all part of that shifting global mosaic of geopolitics. We’re fortunate again because our thesis is kind of built around that whole evolution of China and the inherent competitive advantage that innovative companies from China have in certain other markets.
The long-term secular trends that are driving growth… [are] not going to change, in my opinion. And I think the most sophisticated investors that have been investing in China PE and VC for many years understand that, and that includes US endowments and foundations. So I don’t think there will be a seismic shift in the near term – it takes time for these things to happen, but certainly relationships and capital coming from other regions will happen and that will be perhaps catalysed by the current environment.
On a more positive note, what’s the most satisfying part of your job?
Well, I’m someone who loves building things. That means investing and building in companies; that means investing and building in relationships. And what gives me the most satisfaction is having a vision for how to do that… Working with our limited partners, our investment team and our founders to make it happen, and then delivering on the promise of those outcomes.
Chris Lerner is a managing partner at Chinese growth equity and venture capital firm MSA Capital, where he leads strategy and business development. Lerner was previously head of Asia for placement firm Eaton Partners. He is also a senior adviser at global GP advisory Thrive Alternatives.