The days of the China rainmaker, that dwindling band of politically connected princelings that could land a lucrative mainland IPO mandate for any foreign bank with just a phone call, are dead. Or so many of today’s bulge-bracket banks would have us believe.
There is as much rumour, supposition and innuendo surrounding these individuals as there is fact. Spawned by a combination of envy, politics and plain ignorance, the term rainmaker is probably outmoded but the role is no less relevant today than it was when China’s corporate finance market first opened up to international investment banks. The role has simply evolved and the rainmakers have changed with it.
To hold down a senior job in any bulge-bracket firm today requires more than just a politically star-studded Rolodex. The fact is that China’s banking market is moving on and investment banks must learn to change with it.
Chastened by the likes of Messrs Spitzer, Sarbanes and Oxley, today’s investment banks blench at the inference that they are interested in hiring politically connected bankers – as if that were in some way wrong. How so? Leveraging political connections is not unique to China: private equity powerhouse Carlyle has built a successful global business on precisely this skill.
The need for strong political connections, just as in any major investment banking market, will not disappear in China just because the country’s privatization business is beginning to dry up. A critical skill of any successful investment banker has always been the ability to nurture and develop relationships with clients, existing and potential, private or public sector. As China’s domestic investment banking market begins to focus increasingly on the country’s private sector, why should the need for strong client relationships diminish?
And banks should not be fooled into thinking that politicians’ influence will die along with state privatizations. However China’s political scene evolves, the fact is that today’s Communist Party leaders are likely to hold significant influence over many areas of China’s private sector for years to come, if not in granting mandates then, perhaps even more influentially, over licensing regimes, business and regulatory approvals and other consents.
The more enlightened investment banks figured this out some time ago and are comfortable hiring connected but talented bankers to ensure that their business prospects in China remain positive.
The most obvious example is Goldman Sachs’s deal struck with China banker Fang Fenglei to establish the Goldman Sachs-Gao Hua vehicles. Is Fang a rainmaker? Perhaps by one definition, but does it really matter? The more pertinent question is whether he is the right person to drive Goldman’s onshore China business? The answer appears to be “quite likely”: Gao Hua is already closing domestic transactions and is pulling away from many of its rivals in China. Of all the controversy surrounding rainmakers and their role in today’s global investment banks that is the only fact that really matters.
Those banks still deliberating on their China strategy should focus more on getting their own China businesses right as the banking market moves increasingly onshore than spend time castigating the hiring decisions of rival banks.
And they should remember that having the top man visit potential clients is still the best deal maker of all. Ex Goldman CEO Hank Paulson spent more time in China than just about anywhere other than the US. Credit Suisse insiders say CEO Paul Calello has made over 100 business trips to the country. These, at the end of the day, are the true rainmakers.
