Private Equity in China

Private Equity in China

If you would like to build a career in private equity in China, what would be your options? As a foreigner, how easy is it to cross borders and make your mark in China? What would be the private equity market like? How much salary can you expect? Would you have any exit opportunities?

If these sorts of questions are filling up your mind and you’re getting confused, this is the article you should read. We will try to investigate all of the above questions and will find out some concrete answers.

Overview of Private Equity in China

First of all, the private equity market in China is one of the emerging markets in the world. It has been developing during the last decade, but still, as a foreigner, it would be nearly impossible to break into because the Chinese Private equity market is not only the local market, it’s hyper-local. And Private Equity firmsPrivate Equity FirmsPrivate equity firms are investment managers who invest in many corporations' private equities using various strategies such as leveraged buyouts, growth capital, and venture capital. The top private equity firms include Apollo Global Management LLC, Blackstone Group LP, Carlyle Group, and KKR & Company LP.read more mainly concentrate on local funds.

However, there are also international funds. But if you try to compare local funds and international funds, there are 100% difference between the two. In the case of local funds, the team is huge. You can see that more than 100 people are working in one local fund. As a result, the pay is comparatively lower.

On the other hand, international funds recruit small teams, and pay is much higher. However, local funds close many deals, and international funds have a hard time closing any deals.

Top Private Equity firms concentrate on diversified deals because the industries in China are very much diversified. You will find every industry very much in China – from retail to manufacturing, from IT to healthcare, and from a state-owned enterprise to the constructional industry. You will also find industries like infrastructure, clean-tech, software, energy, etc.

So, in a nutshell, if you are working in China’s PE firm, make sure it is a local fund. Otherwise, you would have a hard time closing anything, which can ultimately hurt your resume. In local funds, you will have no structured training, but you will close more deals, which will help you pump up your resume for future prospects.

If you plan to go to the US or UK in the future, it’s better not to work in China because the experience in an emerging market is much different than having experience in a developed market. After working 5-6 years in Private Equity in China, if you would like to switch to the US or UK, it would be quite difficult for you.

Private Equity Services Offered in China

As you already know that Chinese private equity firms (local funds) are very focused on local funds, and they have a set of services they offer to their very local clients. Have a look at the service orientation and the services offered –

Private Equity in China

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  • Focus: As local funds, the primary aim is to close as many funds as they can. The target market is state-owned enterprises (SOEs) and all other private companies in different industries. They also focus on cross-border deals, but the orientation is far less than the local funds.
  • Three important factors: Chinese private equity firms don’t invest in all companies. They first select and see whether the companies they aim to invest have three main features – first, whether these companies have long-term growth potential or not; second, whether these companies can provide sustainable competitive advantages or not; third, whether these companies have high-caliber management teams or not. After the due diligence, if they find these three factors, Chinese private equity firms decide to invest in these companies.
  • Services: In China, the main deals revolve around fundraising, mergers & acquisitions, and advisory. Moreover, these private equity firms also help portfolio companies create ties with big-shot industry leaders. They also help in restructuring and managing IPOs for Chinese enterprises and offer direct investment services.
  • High-caliber management teams: As the approach of working in private equity in the emerging market is much different than the developed market, the management team in these private equity firms have a set of skills which are not very structured yet have great value. They should know about company life cycles, how things work in the Chinese market, transaction structures, and about ownership structures so that they can handle restructuring, IPOs, M&As, and direct investments.

List of Top Private Equity firms in China

According to China Venture Capital and Private Equity Association (CVCA), here’s a list of top private equity firms which operate in China and as a local PE professional, you can target these private equity firms for future employment –

  • Accel Partners
  • Ancient Jade Capital Management Co., Ltd.
  • Apax Partners Hong Kong Limited
  • Ascendant Capital Partners (Asia) Ltd.
  • Asia Alternatives Advisor Hong Kong Limited
  • Bank of China Group Investment Limited
  • Baring Private Equity Asia
  • Blackstone Group (Hong Kong) Limited
  • Boyalife Group Limited
  • Boyu Capital
  • Capital Today Group
  • CDH Investments
  • CDIB Capital (International) Corporation
  • CDPQ China
  • Cerberus Beijing Advisors Limited
  • Chengwei Capital
  • China Post Life Insurance Co. Ltd.
  • China ReinsuranceReinsuranceReinsurance is a tool used by the insurance companies to reduce their claim liability by getting some of it insured by another company. It helps prevent insurance companies from insolvency. The company insuring the claims is called the ‘Reinsurer’ and the company getting insured is called the ‘Ceding company’.read more Asset Management Co. Ltd.
  • CITIC Capital Holdings Limited
  • CITIC Private Equity Funds Management Co., Ltd.
  • Coller Capital
  • CPP Investment Board Asia Inc.
  • Darby Asia Investors (HK) Limited
  • DST Investment Management Ltd.
  • DT Capital Management Company Limited
  • Fountainvest Partners (Asia) Limited
  • GIC Special Investments (Beijing) Co. Ltd.
  • Goldman Sachs (Asia) LLC.
  • GoldStone Investment Co., Ltd.
  • Gopher Asset Management Co. Ltd.
  • Haitong International Securities Company Limited
  • HarbourVest Investment Consulting (Beijing) Company Limited
  • Hillhouse Capital Management
  • Hony Capital
  • Hubei Yangtze River Economic Belt Industry Fund Management Co., Ltd.
  • IDG Capital Partners
  • JAFCO Asia
  • Jiuzhou Venture
  • KKR
  • KPCB China
  • Legend Capital
  • Linqi (Beijing) Asset Management Co., Ltd.
  • Magic Stone Alternative Investment
  • Maison Capital
  • NewQuest Capital Partners
  • Northern Light Venture Capital
  • Ontario Teachers’ Pension Plan Board
  • Oriza FoFs
  • PAG
  • Primavera Capital Limited
  • Qiming Venture Partners
  • SDIC Unity Capital Co., Ltd.
  • SINO IC Capital Co., Ltd.
  • StepStone Group
  • SVB Financial Group
  • Temasek
  • The Carlyle Group
  • TPG
  • VI Ventures
  • Warburg Pincus Asia LLC

Private Equity Recruitment in China

The recruitment process is what the actual crux of the matter is. Because from this section, you would know how you can get into Private Equity in China.

  • If you’re a foreigner: If you’re a foreigner and you think that China is a great market for working and growing your career in PE, think twice. It may not be the case. If you’re Chinese and went to the US or UK for higher education, you can go back to China and join a PE firm because you would be considered a local only. But if you are born and brought up elsewhere and trying to find your ground in the Chinese Private Equity market, it would be very tough for you. First of all, you will get little or no opportunity in China unless you know Mandarin at a native level. Second, you would be surprised to know that only 10-15 foreigners have been working in the entire Chinese PE industry. Now, you have two options. First, if you want to settle in China for a long time, then you can learn Mandarin and work your way out. Second, if your dream is to go back to the US or UK PE market in 5-6 years of time, you better don’t go for Private Equity in China because the structure and working style are completely different in developed and developing countries, and you wouldn’t be able to add too much value if you leave China and join any US or UK Private equity firm in future.
  • Experience: If you’re a native Chinese and have experience in finance roles, you would be able to get in Private Equity in China easily. So, instead of wasting any time, try getting some hands-on experience. You can also go for two-three internships in PE firms. If you don’t manage to get into PE firms as interns, work in finance departments. The idea is showing your potential employer that you’re having hands-on experience in the finance department.
  • Networking: Networking is required a lot more than you think. You should attend every conference the PE firms conduct, meet every person that comes in the conference to generate leads, and to cold-call anyone who has been associated with a PE firm in China for at least a few years. You need to play your cards and find creative ways to network with people. The idea is to get an interview for an internship position or a full-time opportunity.
  • Interviews: You need to be good with team-management analysis because you will be using this to help find out the right industries to invest into. Coming back to the interview, there are two types of interviews you would face. First, there is a type of interview which is just taken for interns. This type of interview is usually one round. And you would be either sitting with the MD of the PE firm or with the VP. And depending on the experience and knowledge you have, you will be either chosen for internship roles or shown the front door. The second type of interview is for full-time opportunities where you will be going through 3-4 rounds, and most of the questions would be technical. You will be asked questions on valuation, DCF analysisDCF AnalysisDiscounted cash flow analysis is a method of analyzing the present value of a company, investment, or cash flow by adjusting future cash flows to the time value of money. This analysis assesses the present fair value of assets, projects, or companies by taking into account many factors such as inflation, risk, and cost of capital, as well as analyzing the company's future performance.read more, accounting, etc. You can also have a look at the top Private Equity InterviewPrivate Equity InterviewEvery top-tier private equity firm categorizes interview questions into two types. The first set of questions is designed to determine whether or not the candidate is a good fit for the company. The second type of question is the tough one, which helps the interviewer separate the best from the rest.read more Questions.
  • Trust: In Private Equity in China, trust is the most important thing. What matters most here are the relationship and the trust between the clients and the PE firms! Legally binding contracts have less value than a person promising to deliver something. So while giving interviews, you should keep this thing in mind.

Private Equity Culture in China

There are a few things that are important in the Chinese Private equity market. First of all, if you want to get into Private Equity in China, you don’t need to have prior experience in investment banking (which is mandatory in few regions/few firms in countries like the US, the UK, etc.).

Second, you will be working more in local firms and less in international firms. Because in local firms, you would have a lot more funds to work on (at the same time, the number of team members is also huge), and in foreign firms, you wouldn’t know what to close because there wouldn’t be any.

Chinese private equity firms prefer local PE professionals because local entrepreneurs don’t open themselves to foreign professionals. These local professionals can get connected to the local businessmen easily and can convince them for more connections and meetings, which results in the closure of far more deals.

Salaries in Private Equity in China

As mentioned before, local firms pay much lesser than international firms. According to Mergers & Inquisitions, local private equity firms in China pay around the US $90,000 per annum, which is much less than the salary of international firms.

In international firms, private equity associatesPrivate Equity AssociatesA Private Equity Associate assists other senior associates and partners in identifying a well-suited target to invest in and reaping the benefits by selling it at a profit, as well as overseeing due diligence, handling communication, and preparing financial models.read more get around US $150,000 to $250,000 per annum.

There is a typical thing in Private Equity in China. Other than senior partners or MDs, no one gets carrying interest, which has been one of the most significant components of the salary of PE professionals worldwide.

Moreover, in China, the tax rate is much higher. In Beijing, Shanghai, the tax rate is around 30-40%, and in Hong Kong, it is 15%. In the last 10 years, Beijing and Shanghai have become much more expensive, and that’s why living under the US $90,000 per annum is not an easy thing.

Private Equity Exit Opportunities in China

If you plan to work in private equity in China, but after 5-6 years want to go back to the US or the UK, there is an exit route you can follow.

You can work in Private Equity in China for some time (if you get an opportunity, which is very hard to come by). And then, after a few years, you can quit and shift to investment banking. Investment banking is very strong in the Chinese market. So you can shift to investment banking in China and then find a way to go back to the US or the UK in a higher position if you want.

Normally, people who work in PE (local professionals) don’t quit private equity. If they do, there are two options – investment banking and venture capital.Venture Capital.Venture capital (VC) is long-term finance extended to startups with high-growth potential to help them succeed exponentially. The investors are venture capitalists who bear the excessive financial risk and provide guidance to startups to attain their objectives.read more

Conclusion

In a nutshell, as a foreigner, it’s better that you don’t try to get into Private Equity in China unless you absolutely have to get into it for other reasons. The private equity market in China is not as good as investment banking. So even if you work in PE for some time as a foreigner, it’s better to shift into investment banking for better prospects in the near future.

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This has been a guide to Private Equity in China, their services offered, recruitment process, their culture, list of top private equity firms in China, salaries, and exit opportunities. You may also have a look at the following article for learning more about Private Equity