Private equity in China is becoming a tougher sector to work in as deals decline, funds close, and PE firms cut junior hiring.
“The PE industry is different from ten or even five years ago,” says Jason Tan, a partner at search firm Carlson Harriet in Shanghai. “In the past 24 months, largely due to China’s economic slowdown, a lot of small PE funds have closed down.”
It’s especially tough for junior to mid-level PE professionals. There’s an abundant supply of candidates who can do financial analysis and due diligence, but they usually don’t have the deal-sourcing and fund-raising skills that are now more in demand, says Tan.
Juniors are increasingly being forced out of the industry as a result. “The likely new careers for them are at the local investment banks, or in corporate banking,” says Tan.
For those remaining in the industry, deals are becoming scarcer as the growth of target companies declines.
“The number of entrepreneurs in China has been booming since 2015, but there are very few real innovative businesses here,” says an investment manager at a local PE firm in Shanghai. “What we often get from them are just ideas and PowerPoints, without a concrete business plan.”
Dominated by local players, China’s PE industry can be broadly categorised into two groups.
The first comprises of established PE firms run by investment professionals who follow a similar investment process as their counterparts in mature markets like London, New York and Hong Kong.
People with 10 years’ experience or more in this first group should not find it hard to move to another large PE firm.
“These PE firms are most interested in the candidate’s transaction sheet,” says Tan. “While in mature markets, educational qualifications also carry a lot of weight, in China the deals you’ve done and whether you’re currently working for a big name firm matter the most. And if you’ve done deals at places like Fosun Group, CITIC Capital or Anbang Insurance, you can get a new job very quickly.”
The other group of Chinese PE firms are typically newer and smaller. They were born out of traditional industries such as manufacturing and real estate, and are led by industrialists rather than investment professionals.
Working for these firms can be difficult. An investment manager at a small PE firm in Shanghai says his biggest challenge is communication with his colleagues, especially the firm’s founder.
“My boss used to run his own private enterprise, leveraging on his past experience as a government official, and then he set up the PE fund a few years ago. But he’s too dominating because he owns the connections and deals, controls the investment process and believes in his own judgement,” he explains.
The investment manager’s experience is not atypical. As a whole, Chinese PE deals are mostly done by superstars, who control the relationships with target companies. The rest of the team only take care of the administrative and transactional part of the project.
“I wish there was an established and clear investment analysis process to improve the efficiency of decision making here,” bemoans the investment manager.
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