“There is a huge potential not only in the conventional fields of agriculture and manufacturing, but also in the up-and-coming high-tech and IT sectors in China,” he said. “If you can focus on such promising sectors, understand the local culture and work together with the community, you’ll gain reasonable returns.” – James Tan, investment banker
Saturday September 13, 2008
By CHOW HOW BAN
More than US$500bil worth of investment funds have converged on China, it is estimated, fuelling dreams among aspiring entrepreneurs, investors and investment managers.
MORE than a decade has gone since Tim Clissold, author of the internationally-acclaimed Mr China: A Memoir, travelled around the Middle Kingdom scouring for investments in the newly-reformed Chinese market economy.
That was the early 1990s. Today China has elevated itself to be the world’s fourth largest economy.
More than US$500bil worth of investment funds have converged on the nation, it is estimated, fuelling dreams among aspiring entrepreneurs, investors and investment managers.
“I hope that I can use my investment skills and knowledge to help contribute to the betterment of China’s economy,” said a Chinese investment manager who only wanted to be identified as Alan.
“I just want to be a good investment professional. I think it is the enterprises themselves, and not so much investors, who reap the benefits.”
The 40-year-old Beijing native nevertheless admits that his high-risk and gruelling job accords him a higher professional value.
James Tan, an investment manager in his 30s who grew up in Malaysia and received his tertiary education in Australia, likens the investment career to what an artist does.
“To me, deal-making is an art, much like the beautiful paintings hung on the walls. Acquisition analysis, valuation and transaction structuring are the creative artistic process,” he said.
“Investment managers are the artists who craft the deal structure and execute the strategy. The final piece of the artwork is the consummated transaction.”
The two managers work for different foreign private equity funds in China, but share a similar job scope that takes them to various Chinese cities to evaluate investment opportunities.
Not only do they work long hours, but they also meet different business characters in challenging situations in their pursuit of deals.
Tan landed in Shanghai, China’s financial capital, in a somewhat romantic way in 2005.
“Like many overseas Chinese, I have a romantic view of Shanghai of the 1920s and 30s when it was the Paris of Asia and epicentre of art, culture, commerce and finance,” he reminisced.
“I remember I was in Sydney watching a documentary on the city of Shanghai. Then, I read Mr China over the Christmas vacation. Within a few months I landed in China.”
He had wanted to return to Asia after living in the West for many years, and the metropolis was on top of his list.
For Alan, the vast investment opportunities in China was the driving factor for him joining the profession five years ago. He had been working in local and foreign banks for years.
“There is a huge potential not only in the conventional fields of agriculture and manufacturing, but also in the up-and-coming high-tech and IT sectors in China,” he said. “If you can focus on such promising sectors, understand the local culture and work together with the community, you’ll gain reasonable returns.”
Alan likes the challenges of doing everything from A to Z – data collection, deal evaluation, due diligence and negotiation. Most of his deals flow from referrals by advisory firms, networking and public information.
“We seek investments in small enterprises in the central business districts and suburbs of major cities like Beijing, Shanghai, Guangzhou and Shenzhen. Usually, we go directly to the companies we intend to invest in to discuss terms and gather as much information from them,” he said.
Despite the many risks small enterprises pose in terms of management, technology development and credibility, he said, their immense growth potential make it worthwhile.
“They are more likely to turn around and make a major breakthrough. When you invest in small enterprises in times of adversity, that gives you higher returns,” he added.
Tan said: “Contrary to what a lot of foreigners think, Chinese entrepreneurs are smart and worldly. Although most don’t have Harvard MBAs, or speak good English, they read translated books especially those from the United States.”
He said what wins investment managers deals is how well-versed they are about the local culture and behaviour of Chinese entrepreneurs and owners of commercial real estate. The fund he is with invests in office towers and retail shopping malls throughout China.
“I’ve been to 500 shopping malls in China. In second- and third-tier cities, they don’t usually talk business and tell you things until they trust you. Unlike Shanghai, Beijing and Hong Kong, where you can get straight down to business,” Tan said.
“We talk to businessmen to find out about the companies and businesses that we want to invest in. It’s very crucial to understand them,” Tan said.
Both Tan and Alan are swamped with various deals, and sometimes even pursue eight investment proposals at the same time. That’s how ferocious the competition is among the venture and private equity funds, and how vast the opportunities are in China.
“What clinches a deal is the sheer speed of deal execution. Everyone is competing; the question is whether you are decisive enough,” Tan said.
“You know, it was America that was the cradle of entrepreneurial activities everyone talked about in the last century. Fast forward to 2008, the economic boom has shifted to China.
“China has finally arrived.”