Q&A: CMC Capital Partners' Ruigang Li

Q: CMC claims to run the first media and entertainment-focused fund approved by the National Development Regulatory Commission (NDRC). What does that mean?

A: CMC was founded in 2010. There weren't many renminbi-denominated funds in the space; most of them were US dollar funds. To raise a domestic fund, you were required to register with the NDRC, and with its certification you can raise capital from large Chinese financial institutions. When we registered, we had to pick sectors we were looking at. For example, manufacturing, broadcasting and transportation, you name it. We wanted to focus mainly on media and entertainment, and so we became the first firm to manage a renminbi fund focused on the cultural industry.

Q: How has CMC diversified its LP base since then?

A: We closed our first renminbi fund at RMB2 billion ($315 million), with contributions from China Development Bank Capital, Shanghai Dongfang Huijin Cultural Fund (a holding company of Shanghai Media Group, SMG), an investment fund unit owned by China Merchants Bank, and Wenhui Xinmin United Press Group, among others. The fund was fully deployed by 2013. Then we raised $350 million for our first US dollar fund in early 2014, after spending six months in the market. It has a diversified LP base comprising fund-of-funds as well as six corporations from the US, Japan and Australia.

Q: What kind of deals was CMC looking at in the early days?

A: In our debut renminbi fund, we mainly focused on media and entertainment companies. Our first deal was the acquisition of a 53% stake in Star China TV from News Corp. in 2010. Star TV China, which was set up a joint venture (JV), was in distress at that time. We changed the management team and restructured the operational model. Last year, we took the full ownership of the company, acquiring the remaining 47% stake. The business is making impressive profits now and we will consider listing it next year. Although the Star TV China deal came from the renminbi fund, we converted renminbi to US dollars in order to make this investment. It was the same when we invested in a JV with DreamWorks Animation in 2012. Our primary focus remains media and entertainment, but traditional movie and TV businesses are no longer attractive to us. A company has to demonstrate its potential and capabilities to operate along the entire value chain - from content creation to distribution. It's a totally different model from the past.

Q: CMC also has invested in a handful of start-ups in areas such as education and online food-ordering. What is the thesis?

A: Over the last two years, we have developed two more core focuses - lifestyle and internet and mobile. The technology, media and telecom (TMT) sector is very broad and what interests us is that a lot of content is created across mobile platforms. So we have invested in examination prep platform Yuantiku as well as start-ups operating in the online-to-offline (O2O) space, like Ele.me. We also believe every consumption business is a branding process, in order to draw attention from the masses. With this in mind, we are looking at emerging companies with brand value, such as online music operators and virtual reality (VR) technology-based lifestyle products.

Q: CMC has formed several partnerships with Western media groups including FremantleMedia, IMAX and Warner Brothers Entertainment. How do you help them expand in China?

A: In China's media and entertainment industry, it takes a long time to build up experience and networks. It's a very local business. International companies usually find it hard to pursue greenfield projects in China because they have yet to develop professional systems to run these businesses. We have the domain expertise and resources to them. For example, we know how to use our advertising techniques to establish brands in China. IMAX China is a classic case of how we add value. The US-listed parent decided to spin-off its China business and structure it as a JV so Chinese investors could come in. CMC and FountainVest Partners invested in the JV and took the company public in Hong Kong within two years. During the holding period, we helped IMAX China develop a new business line - building film theatres in luxury homes. We also jointly launched a film-focused fund that invests in local movie production and distribution.

Q: How have you built up your team?

A: The composition of our team has changed a lot since CMC's inception. When we set up the firm, the key people were from SMG and they had a lot of experience in content production and business operations in the media industry. Over the past five years, we have expanded the team to 20 - and 90% of them were previously investment managers in TMT or working elsewhere in the financial sector. We haven't hired new people from SMG or any other traditional media company. In today's world, the internet is becoming the most critical channel for content distribution, helped by deeper mobile internet penetration. That's also one of the reasons of why I founded another new company - Whaley Technology. It develops internet-enabled TVs and competes with the likes of Xiaomi. We see ourselves becoming the largest content distributor in this space, as there will be a variety of content that can be aggregated on the Whaley platform.

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• Topics
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• Greater China
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• TMT
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• China Media Capital
• China