With growth slow­ing, in­dus­try know-how seen as key to PE firms’ fu­ture

China Daily (Hong Kong) - - BUSINESS - By CAI XIAO caix­iao@chi­nadaily.com.cn

In­dus­try know-how, self­dis­ci­pline and post-in­vest­ment man­age­ment are vi­tal for pri­vate eq­uity in­vestors in China when eco­nomic growth is slow­ing, a se­nior ex­ec­u­tive of Kohlberg Kravis Roberts & Co LP has said.

David Liu, CEO of KKR China, said it is more dif­fi­cult to find a good deal when China’s econ­omy is trans­form­ing to new nor­mal, so deep in­dus­try un­der­stand­ing should be im­por­tant for pri­vate eq­uity in­vestors. Liu was speak­ing at the China Ven­ture Cap­i­tal and Pri­vate Eq­uity As­so­ci­a­tion’s an­nual sum­mit in Beijing ear­lier this month.

“In the old days, there was a lot of wind be­hind your back in many in­dus­tries in China, but growth has slowed down sig­nif­i­cantly in many sec­tors to­day,” Liu said. “So pri­vate eq­uity in­vestors have to fo­cus on de­vel­op­ing deeper in­dus­try knowl­edge and re­la­tion­ships in or­der to iden­tify more at­trac­tive pro­pri­etary trans­ac­tions.”

Ac­cord­ing to Liu, pri­vate eq­uity in­vestors should have the self-dis­ci­pline to do due dili­gence, price ne­go­ti­a­tion and deal struc­ture de­sign.

“In­vestors have to be more cau­tious on val­u­a­tion and be more dis­ci­plined on trans­ac­tion terms and struc­ture to pro­vide suf­fi­cient mar­gin of safety,” said Liu.

“Post in­vest­ment port­fo­lio man­age­ment can play an im­por­tant role in im­prov­ing in­vest­ment re­turns when eco­nomic growth is slow­ing. Strong port­fo­lio man­age­ment and value added can help in­vestee com­pa­nies im­prove op­er­a­tions and out­per­form com­pe­ti­tion,” said Liu.

He said eco­nomic growth in the United States and Europe has been very slow, but the an­nual rate of re­turn of some pro­fes­sional pri­vate eq­uity funds in th­ese mar­kets can

In­vestors have to be more cau­tious on val­u­a­tion and be more dis­ci­plined on trans­ac­tion terms and struc­ture.” David Liu, CEO of KKR China

still be more than 20 per­cent. Main rea­sons are deep in­dus­try spe­cial­iza­tion and strong port­fo­lio man­age­ment.

As for in­vest­ment in­dus­tries in China, Liu said con­sump­tion up­grad­ing, ed­u­ca­tion, health­care and en­vi­ron­men­tal pro­tec­tion can be of great po­ten­tial.

He said: “Food safety re­mains a top pri­or­ity and we have made many re­lated in­vest­ments. We be­lieve there are still many op­por­tu­ni­ties sur­round­ing con­sump­tion up­grad­ing in the next five to 10 years.”

COFCO Meat Hold­ings Ltd, the Chi­nese main­land pork pro­ducer part-owned by KKR, had an ini­tial pub­lic of­fer­ing in Hong Kong in Novem­ber fi­nanc­ing HK$2 bil­lion ($257.5 mil­lion).

China Na­tional Chem­i­cal Corp and New Hope Group Co Ltd are con­sid­er­ing mak­ing a joint bid with KKR for McDon­ald’s Corp’s fran­chise rights in China, ac­cord­ing to Bloomberg in June. In May, a con­sor­tium that in­cludes China In­vest­ment Corp and KKR ended dis­cus­sions to buy a stake in Yum Brands Inc’s China unit.

KKR’s China team has also led other in­vest­ments in China in­clud­ing Tarena In­ter­na­tion­alInc, Fu­jian Sun­ner Devel­op­ment Co Ltd, China Mod­ern Dairy Hold­ings Ltd, Qing­dao Haier Co Ltd, Ping An In­sur­ance (Group) Com­pany of China Ltd and Meng­niu Dairy.

There were 7,859 ven­ture cap­i­tal and pri­vate eq­uity in­vest­ments made in the first 11 months of 2016 in China with a to­tal in­vest­ment of 668.3 bil­lion yuan ($96.1 bil­lion). In 2015 the fig­ure was roughly 500 bil­lion yuan, ac­cord­ing to Zero2IPO.


A user checks his heart rate on Philips Health Watch, the first among the com­pany’s prod­ucts tar­get­ing Chi­nese con­sumers, whose spend­ing on well­ness and fit­ness gad­gets and pro­grams has been in­creas­ing of late.

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