Top Biz News

Banking high flyers sign up to PE in China

By Karen Yip (China Daily)
Updated: 2010-03-12 11:39

Fred Hu, Goldman Sachs chairman in China, left the investment bank to establish a private equity fund in the country. WANG ZHAO / FOR CHINA DAILY

Good returns attract big names to young industry

BEIJING - China's need for private investment - partly due to economic growth and restricted access to the public market - has attracted a slew of high-profile investment bankers to join the private equity (PE) or venture capital (VC) practice.

Such career moves, although not new at this time of the year following bonus payouts, are expected to see more bankers join China's PE or VC practice due to the potential attractive financial returns in a relatively young industry, which is ranked second globally in terms of investment values made by PE funds.

According to consulting firm Bain & Co, 29 PE deals were made in China between January and February this year. China currently constitutes 5 percent of global PE investments.

On Wednesday, Fred Hu, Goldman Sachs' chairman in China, quit from his 13-year career with the investment bank to establish a private equity fund in the nation. His resignation followed the footsteps of several former colleagues who left to establish private equity funds focused on Chinese deals.

Fang Fenglei, another former Goldman Sachs investment banker, left in 2007 to form a $2 billion PE fund in early 2008 with Singapore's investment arm, Temasek, with a China focus. Both Fang and Hu are known as rainmakers in investment banking circles.

"Having senior talents join the PE/VC practice is a sign of confidence in China. Besides, the growth of yuan-denominated funds requires seasoned professionals who have seen several economic cycles, have strong industry expertise and not just financial skills, and have high personal integrity," said Andre Loesekrug-Pietri, chairman of the Private Equity and Strategic M&A Working Group of the European Union Chamber of Commerce in China.

Perhaps it is also a sign that PE's future is attractive for top talent - maybe less positive for the investment banking industry which is still hurt by the financial crisis and reduced IPO activity, he added.

"You do not make money overnight in PE. It requires long term, strategic and industrial skills, and this is a good thing."

Investors are now more willing to go long-term in view of the opportunities in China. Deal-making and portfolio management are seeing more active involvement by senior talent.

The skill sets and business relationships of bankers are relatively transferable to the PE setting, said Maurice Hoo, a partner at consulting firm Paul Hastings.

"These astute professionals see the opportunities and are responding to market demands," he added.

The global financial crisis and its impact on investment banking coupled with a high burnout rate were factors that push bankers to join the PE or VC practice.

During the peak period, it's common for bankers to clock in 100 working hours in a week. "It's not something new. It has happened before. What's going on with the investment banking model is that people are readily considering joining private equity, venture capital and other buy-side investment opportunities," said Andrew Chang, China associate director at Michael Page (Beijing), a global executive search firm.

A sense of ownership could also be a strong factor driving bankers to form PE funds, he added.

Other high profile movers included Jonathan Zhu who left Morgan Stanley China in 2006 to join Bain Capital, where he oversaw the acquisition of a controlling stake in electronic retailer Gome. At Morgan Stanley, Zhu managed the $9.2 billion initial public offering for China Construction Bank as well as the listing of China Unicom.