PAG’s Weijian Shan: There is risk of operating in the US

General partners could be forgiven for taking things slow during the pandemic. PAG, one of Asia’s largest homegrown managers, does not appear to have received the memo.

The Hong Kong-based firm, which manages $40 billion across private equity, absolute return and real estate, looks set to match last year’s capital deployment in spite of coronavirus disruption, Weijian Shan, PAG’s group chairman and chief executive, told Private Equity International.

In October, PAG agreed to acquire a controlling stake in Anjan Drug Pvt, an Indian pharmaceutical manufacturer, in a consortium with CX Partners and Samara Capital. That deal followed a $300 million investment into Edelweiss Wealth Management, India’s second largest non-bank wealth management business, in August.

The firm also exited Korean toy maker Young Toys to an investor consortium led by local book publisher MiraeN in September and appointed Sid Khotkar, a former interim director at Australia’s Future Fund, as managing director in Melbourne in February.

In a year blighted by travel disruption and geopolitical tensions, PEI caught up with Shan to discuss PAG’s investment pacing, potential for expansion and how US-Sino relations might impact Chinese private equity.

To what extent has the pandemic impacted PAG’s deal activity in 2020?

We deployed about $2 billion just on the private equity buyout side in 2019 and three months ago I thought we probably could do about $1 billion this year. I thought our pace was not fast enough but a number of deals we cooked over the course of the year have come very close to closing. At this point, I think we will probably be able to do as much as we did last year.

We have offices throughout all the major markets in Asia and when there’s restrictions on international travel, all of a sudden you feel you have an advantage because your local offices can still be active in those markets. I’m surprised that we’re doing so much this year. The quality of the deals this year is also very good because you can be very selective, there’s less competition and the valuations are very compelling.

What markets are exciting you in Asia?

The big markets for us are Korea, Japan, China, South-East Asia and Australia and New Zealand, where we’ve been very active this year. We announced two deals in India this year and we didn’t do any there last year.

One country that has become quite interesting for us is Vietnam, which has done particularly well this year. We have not invested there, not for lack of trying. We focus mostly on buyouts, control investments, and in Vietnam to get a buyout is rather difficult. But I think it’s a very attractive market because it’s growing, including this year; it has 90 million people; and it reminds you of China 20 years ago. There’s just not enough deal activity there to justify an office yet.

PAG has a large China portfolio. How have tensions with the US changed the way Chinese companies plan for growth?

By and the large the US market is less open than before and there is risk of operating in the US market, as we have seen. But the Chinese domestic market has expanded very significantly in the past 10 years.

In 2009, the retail goods market in China was $1.8 trillion and $4 trillion in the US, more than twice the size. Last year, China’s retail goods market was $6 trillion, slightly more than that of the US. So, in 10 years, the Chinese market has expanded tremendously and therefore the domestic market has become very significant and we have seen companies on a very large scale in China.

Weijian Shan is group chairman and chief executive at PAG. Prior to PAG, he was a partner of TPG and co-managing partner of TPG Asia, formerly known as Newbridge Capital. Shan is also the author of Out of the Gobi: My Story of China and America (2019) and Money Games: The Inside Story of How American Dealmakers Saved Korea’s Most Iconic Bank (2020).