Parachute failure

A recent conference panel comprised of heavy-hitting GPs highlights how crucial local expertise is to operate in China, writes Amanda Janis

Forget about jetting over rainmakers from New York and London. Ditto for hiring Hong Kong GPs to staff a mainland China office.
 
Parachute private equity just doesn’t fly in China, a panel discussion on private equity opportunities in China concluded yesterday at an International Capital Conference in London.
 
As China’s attractive demographics and burgeoning business sectors continue to lure buyout firms, only those which are willing to think outside the traditional buyout box and attune both culturally and operationally to the country’s rapidly changing, highly fragmented markets will find success.
 
“If you are running your private equity firm with the decision makers in New York and London, you can’t keep up with how things flow,” said Liu Yang Sheng, founder and managing partner of Chinese private equity firm Hao Capital.
 
Liu, who prior to forming Hao in 1999 spent six years as a managing director at Lazard Asia, said he tells people the speed at which China is growing and changing is “like watching a video on fast-forward”.
 
Not only is there no time to pause and await decisions from afar, but people without an understanding or link to the particular province in which they’re operating probably shouldn’t be pushing buttons, he argued.
 
His sentiments were largely echoed by fellow panellists Andrew Wolff, head of Goldman Sachs’ principal investments group in Asia; Dan Carroll, managing partner of TPG Asia; Johannes Huth, head of Europe for Kohlberg Kravis Roberts; Gerry Murphy, a London-based managing director that focusses on support for The Blackstone Group’s European and Asian portfolio companies.
 
Language barriers, though not directly addressed during the panel, clearly remain an issue for some firms.
 
When one of the 150 Chinese business delegates stood and asked a question in Chinese, four of the five GPs on stage had to reach for headphones to hear an English translation.
 
But investors should know, just as pulling the rip cord on a parachute is not without risk, translation can leave you in a terrible tangle.