In our annual private equity awards for 2007, which can be found in the Annual Review accompanying this issue, Goldman Sachs took the prize for top M&A adviser in Asia. Those close to the bank's operation in that part of the world say a major reason why it attracts plaudits is the strength of its Chinese joint venture, Goldman Sachs Gao Hua, headed by famed local rainmaker Feng Fenglei.
For Goldman, therefore, Fenglei's announcement in December last year that he was to spearhead the new $2 billion Hopu private equity fund – amid reports that another highly rated Goldman banker Richard Ong would be following Fenglei's footsteps – must have been a cause for regret. No doubt its mood was lightened a little by having the opportunity to be a minority investor in the fund. In addition, Fenglei insisted he had no intention to leave the Goldman fold and would continue as chairman of Gao Hua for the foreseeable future. Sceptics questioned whether the demands of Fenglei's new role would take him too far away from Gao Hua's day-today business to retain anything like the same influence that earned him his glowing deal-making reputation.
While Goldman was probably left with mixed feelings, so too perhaps was the Chinese Government. In a development rich with irony (given the fears of certain parties that sovereign wealth funds such as China's CIC may exert a pernicious influence on the Western world), China is itself in something of a tizzy about the power wielded by Singapore's investment arm, Temasek. In an attempt to lessen Singapore's dependence on the fortunes of companies within the city state, Temasek has been busily diversifying into mainland China, snapping up a series of stakes in both state-owned and private Chinese companies. It was rumoured that agitation over Temasek's portfolio-building may have pressured the latter to sell $550 million worth of shares in China Construction Bank last November.
China's relationship with Temasek might once more be put to the test through Fenglei's new fund: after all, no less than half of the $2 billion is being committed by the Singaporean heavyweight. Goldman Sachs is one of the international investors expected to jointly account for the other 50 percent.
On the other hand, and possibly overriding any concerns about the Temasek factor, China may celebrate that here is a fund of apparently serious heft to take on the American-based buyout shops, a number of which have planted their flagpoles in the country in recent years. Make no mistake: China considers this an important issue. Last year, the
country introduced a new legal framework specifically to favour domestic firms, including by simplifying their taxes and encouraging the creation of renminbi-denominated funds.
China does have some long-established, highly respected GPs – CDH springs readily to mind – but top tier domestic Chinese funds such as this are scant. Fenglei's is not the only fund hoping to add its name to the roster. The Bohai Industrial Investment Fund, for example, has generated much press attention – not surprisingly, given that it reportedly has $2.5 billion at its disposal. Effectively a pooling of resources by six mainland Chinese organisations – including the National Social Security Fund and China Post – Bohai is not, however, the same type of creature as the Fenglei vehicle.
What Fenglei's fund could potentially become is a local champion. There is at least one apparent parallel for this. In neighbouring South Korea, a country where concerns about the influence of foreign buyout firms are well documented, Michael Kim was able to claim precisely this status for his now well-established MBK Partners fund. Given Fenglei's outstanding personal reputation, the blue-chip (if not entirely uncontroversial) nature of his investor base and a contacts book that rivals will likely find it hard to match, there is every reason to suppose that Fenglei can, at the very least, give foreign GPs a run for their money.
Despite those who wonder whether Fenglei can continue being a prolific deal originator for Goldman, the latter may well be comforted by a spectacular return on investment from his fund. The Chinese authorities, meanwhile, may fret about Fenglei's major shareholder – but will surely overcome their reservations in anticipation of a huge domestic success story. No pressure, then.