Redefining Chinese outbound investment

A Capital’s managing partner André Loesekrug-Pietri tells PEI why the firm recently partnered with the Beijing government to launch an RMB3 billion (€317 million; $460 million) fund to support Chinese companies’ overseas expansion.

Why raise an RMB fund in addition to the Euro-denominated fund A Capital already launched?

Our strategy has been recognised as very unique and interesting by both Chinese LPs and the Beijing Government Bureau of Financial Work, and several investors came to see us and asked how they could invest with us. Since they are RMB investors, we set up this platform.

André
 Loesekrug-Pietri



What is your strategy?

We invest in the best companies in Europe that are exposed to Chinese growth, so we are investing at European valuation, low risk levels, with a target for Chinese upside and exits. And our strategy is to invest together with Chinese corporations into these European firms.

How does your strategy differ from others’?

We go against the traditional way of Chinese outbound investment, which often tended to go to companies that were not doing very well. We think the risk of investing in a bankrupt company is much higher, especially when you add on the layer of culture issues, on top of operational issues and financial issues. It’s a recipe for failure in a lot of cases.

We believe it makes sense to start with minority investment, in order to be more acceptable by all stakeholders. The good companies are very cash rich, and they can choose their partners. But that’s exactly the ones that you want to invest in, the better ones. In order to invest in them, you need to prove that you’re really going to bring a lot of value to the company, especially in terms of operating in China.

So on one side, you have Chinese firms that are now strong domestically but want to go up the value chain. They also see internationalisation as a way for their own structures, management and governance to be improved to match the international standard. On the other side, you see a lot of European firms that realised China has become a consumer market in itself and are thinking how they can access that.

In a nutshell, more than minority or majority, what counts is if the European target and its shareholders, staff and partners can greatly benefit from a Chinese investment. And this is what we are pursuing.

What’s your specific investment focus?

There are three main themes. First of all, strong brands. A lot of European brands are seeing China more and more as a consumer market rather than just a production market. But for these brands, it’s not necessarily easy to access the Chinese consumers and set up a distribution network. Having a Chinese investor who can secure and accelerate their presence in China is key. And for Chinese companies, tapping into the brands that have a long history, prestige and value is also interesting.

Second, it’s technology. I would argue in many fields defined as key for China – the seven strategic sectors like environmental technologies, high-end manufacturing, new transportation, healthcare, etc – the leading groups can be found in Europe.

The third sector focus is distribution channels. I think the global financial crisis was really a turning point for a lot of Chinese exporters and manufacturers. They realised that they’re actually not in connection with their end-consumers, and suffered a strong downturn in sales. They were also stuck between falling revenues and higher costs as they didn’t have the whole value chain.