China rainmakers pour into private equity

By:
Elliot Wilson
Published on:

Big names move to buyout firms; private equity ‘has money to burn’.

An entire generation of rainmakers that once epitomised the megadeal world of Chinese investment banking has found a new lease of life in the slower-paced but often more lucrative world of private equity. 

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Henry Cai

Over the past six months, a host of figures once deemed invaluable to global investment houses seeking to grab choice underwriting roles on China-led initial public offerings, or to secure joint ventures with mainland brokerages, has slipped quietly from the banking scene. 

In July 2015, the wiry, ascetic Zhang Liping joined Blackstone Group as the US buyout firm’s chairman for the Greater China region. 

Zhang spent most of the 1990s at Merrill Lynch, shoehorning the US institution, now part of Bank of America, into a series of flagship deals, including the 1993 dual New York-Hong Kong IPO of Shanghai Petrochemical, and the first global sovereign bond issuance by the People’s Republic of China, completed the following year.

In October 2015, Henry Cai, a key member of the Chinese State Council’s IPO team in the early 1990s, announced the formation of a new $1 billion private equity group, AGIC Group. Cai raided his former employer, Deutsche Bank, which he quit in early 2015, for talent, while plucking experienced investment bankers from the likes of BAML and Goldman Sachs. 

AGIC, which has offices in Beijing, Hong Kong and Munich, aims to fund the aspirations of German corporates keen to expand into China and the wider Asia region. A typical investment in a single corporate, AGIC’s website says, will vary from €25 million to €100 million. 

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A total of $8.1 billion worth of private equity-funded deals were completed in mainland China in 2015, or just shy of a third of all Asia ex-Japan transactions by volume.


New path

Nor is private equity only offering refuge to former rainmakers seeking a new path in life. In January 2016 another buyout firm, TPG Capital, hired Jin-Yong Cai, former Goldman partner and CEO of Beijing-based investment firm Goldman Sachs Gao Hua, who most recently headed the International Finance Corporation (IFC), the private-sector arm of the World Bank.

Cai only joined the IFC in October 2012, but was said to be frustrated by the pace of deal-making at the lumbering Washington-based institution. He will spearhead TPG’s push into developing economies, overseeing billions of dollars in investments across Asia and Africa, the $70 billion private equity group says. The hire is also part of a strategic shift at TPG, as the group seeks to transform itself into a more diversified asset manager. 

This surge in hiring activity is a welcome boon for executive search specialists in Hong Kong and mainland China, as many global investment banks, still under pressure to cut costs and staffing levels, continue to scale back in Asia. On January 21, Barclays said it would shut its operations in Taiwan and South Korea and exit its cash equities business in Asia. 

Chinese broking houses are also suffering. Many hired foreign talent in 2012 and 2013 before scaling back sharply, then running into trouble last year, when the latest mainland stock rally ran out of steam. 

"There is a general drift away from investment banking and toward private equity," says one Hong Kong-based headhunter. "Very few investment banks can pay [annual salaries] of $5 million, as they would in the past."

Another adds: "Private equity has money to burn, particularly in and around China. It’s a very attractive proposition for former rainmakers who don’t want to spend half their time filling in forms. They get paid more, work shorter hours and can make the most of the contacts they’ve built up over the years."

Tangible benefit

Private equity offers another tangible benefit for long-in-the-tooth investment bankers: its invisibility cloak. While banks squirm uncomfortably under the very public and admonishing gaze of taxpayers, regulators and politicians, private equity firms potter along happily, even their biggest deals mostly obscured from view. 

While the likes of JPMorgan (along with several of its peers) have in recent months been castigated for hiring so-called 'princelings’, the sons and daughters of prominent party officials, buyout groups have no such qualms. Alvin Jiang, founder of Hong Kong-based Boyu Capital and son of former Chinese president Jiang Zemin, is a prominent private-equity princeling, as is Winston Wen, son of former premier Wen Jiabao.

Nor is private equity the only refuge for Mandarin and Cantonese-speaking investment bankers looking for a new challenge. In August 2015 Winston Cheng, former head of Asia technology, media and telecommunications at BAML, left to a join a division of mainland entertainment conglomerate LeTV. Cheng will oversee financing, investment, and mergers and acquisitions at the acquisitive Beijing-based firm, which boasts a market capitalization of $10 billion.

Executive search experts say they are also working to place prominent Hong Kong- and Shanghai-based bankers at a host of acquisitive Chinese firms outside financial services, including telecommunications firm Huawei, smartphone maker Xiaomi, and online search engine Baidu. 

"All of them are looking to professionalize and internationalise their business," says one headhunter. "And that requires a deep well of banking talent and expertise."