Q&A: Maison Capital's Roger Wu

Q: How did Maison Capital build its LP base in the renminbi fund space?

A: We started in 2004, part of the first batch of renminbi private equity firms in China. Over the past 12 years, our investments have focused on early to growth-stage consumer companies. We manage three renminbi-denominated funds, with total assets of RMB1.5 billion ($228 million), as of the end of last year. The last two funds are each RMB500-600 million in size, while the debut fund was smaller. Local high net worth individuals were our main LPs in the beginning and in 2011 we secured our first institutional LP, Ping An Insurance. Since then, we have seen a growing demand from domestic institutional investors, including renminbi fund-of-funds in recent years.

Q: There are numerous consumer-focused Chinese GPs, on the US dollar and renminbi sides. How are you differentiated?

A: There are many consumer sub-sectors and we put them in three categories: lifestyle, technology and services. For example, when we look at healthcare services companies, we treat them as consumer services investments. In terms of strategy, we want to invest in a company early on and hold for a long period of time. We have developed a systematic research approach for every segment in order to understand businesses well. After we select an industry, we conduct bottom-up research, covering growth prospects, industry development cycles and revenue drivers. Once we have identified an appropriate candidate, we observe it continuously and stay in contact with the entrepreneur for about 1-2 years before investing. Our approach is not ‘get them the term sheet on Friday and invest the following Monday.' We really want to understand the businesses we invest in and get to know the management.

Q: Maison was an early investor in drone maker DJI, which is now valued at several billion dollars. How did the bottom-up approach help identify this company?

A: We were the first institutional investor in 2013. It wasn't a venture capital-type deal; when we invested, the company was already profitable with a proven business model. The process of identification was no different than other investments - we believed in DJI's growth potential in the drone technology market. When we invested not a lot of people thought it would be a great company because it was in such a new market.

Q: To what extent are you concerned about unsustainably high valuations in the renminbi space as individual investors pour into the private market?

A: Those deals represent hot spots in the market. All of our investments are based on analysis and independent judgment, and we often find we are the only ones looking for deals in certain sub-sectors. We want to identify trends first so we don't have to pay a premium for access. Many people are looking at healthcare, typically chasing deals for hospitals. However, many other areas are being neglected, such as primary healthcare services. The home doctor space is highly fragmented and there is an opportunity for consolidation. Valuations are also very reasonable right now.

Q: Maison has expressed an interest in the new wave of state-owned enterprise (SOE) reform. How can PE investors take advantage of this opportunity?

A: Under the SOE reform policy agenda, we don't see a broad set of opportunities across all sectors. However, there are openings for PE investors in selected sectors, particularly highly competitive areas such as consumer goods. As the government encourages mixed ownership of SOEs, we see that SOEs facing competitive pressure are willing to work with private companies. ORG Packaging is a classic example. We invested in the privately-held metal packaging manufacturer prior to its A-share IPO in 2012. Last year, the company acquired a 27% stake in one of its rivals, Hong Kong-listed CPMC Holdings, which is owned by state-backed COFCO Group. CPMC wants to improve its operations by leveraging ORG's management experience and market-driven model. As a PE investor, we get the upside of the companies working together and indirectly get exposure to SOE reform. Insurance agencies and healthcare services are also worth looking at. They were dominated by SOEs but now private players are becoming more competitive, forcing the SOEs to work with them.

Q: More GPs that made their names with renminbi funds are raising US dollar funds, and vice versa. Is Maison considering a US dollar fund?

A: This will be an ongoing trend, and we believe it represents a gradual convergence of the two currencies. We plan to raise a US dollar fund in the future. Whether raising a renminbi fund or a US dollar fund, attracting institutional LPs depends on building a systematic and consistent investment approach and track record. Currently there are some hurdles around foreign exchange policy and capital controls, but these will diminish over the next few years. At that time, a fund manager will be less worried about making an investment from a local vehicle or an offshore fund, or whether to list a company domestically or overseas.

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• Topics
• Greater China
• GPs
• Technology
• China