Q&A: China Everbright's Shuang Chen

Q: How does China Everbright transition from a broker to an asset manager?

A: We were an investment banker and broker in China and Hong Kong before 2011. We sold the Hong Kong brokerage and banking units and then re-positioned China Everbright as a macro asset management platform. Our parent company, China Everbright Group, holds a 49% interest in us; and we have two stakes in non-core businesses in China - 3.51% in Everbright Bank and 33.33% in Everbright Securities. When the opportunity arises, we will exit these stakes to our parent. This will leave China Everbright with four core businesses: primary markets, secondary markets including hedge funds, structured financing (through mezzanine funds) and aircraft leasing. We expect to grow total assets under management (AUM) by more than 30% year-on-year in these four areas.

Q: Primary markets account for the largest portion of AUM. How has Everbright developed in this space?

A: Primary markets comprises three US dollar-denominated PE funds, three renminbi venture vehicles and five sector-focused funds. While investing in early-stage companies in China is challenging, we adjusted our strategy to focus more on expansion investments and industry funds. We have recently launched new funds specializing in healthcare, new energy, advanced manufacturing and cross-border transactions.

Q: How independent are you from China Everbright Group in terms of fundraising?

A: We work independently from our parent. We [China Everbright] serve as anchor investor in the funds, although the sums committed vary. When China Everbright set up its first PE investment unit in Shenzhen in 2001, all the capital came from internal sources, but we soon realized this solution was not sustainable and started to raise capital from outside investors in 2003. The first US dollar vehicle - the $50 million Special Opportunities Fund I - received about 20% of its commitments from US investors and the rest came from our balance sheet. We are now raising the fourth US dollar fund for the Special Opportunities Fund series and the China Everbright contribution will be around 20%.

Q: What is the fundraising environment like right now?

A: Renminbi fundraising has slowed significantly since 2012. Domestic investors are less mature and target short-term profit rather than long-term returns. There are few institutional investors in China, such as the National Council for Social Security Fund (NSSF) and insurance companies, but their private equity programs are still at a nascent stage. It will take a long time to educate the market that PE is a long-term investment, rather than a short-term bet that can deliver sky-high returns. In the meantime, it is easier for us to raise funds from overseas institutional investors. Over the past few years, we have consistently attracted capital from investors including sovereign wealth funds.

Q: China's securities regulator has assumed responsibility for domestic private equity and managers are now required to register with the Asset Management Association of China (AMAC) and disclose fund details. Is this a positive development?

A: We have registered our renminbi vehicles with AMAC. The industry should adopt a market-oriented development model, based on managers establishing investment track records and presenting their capabilities to raise capital from institutional investors. The definition of "qualified investors" and "illegal fundraising," meanwhile, is still unclear. I think this is what the regulatory should be looking at.

Q: The regulator also suspended IPOs for a year. What impact did this have on your exits?

A: We have invested in more than 80 projects to date, including real estate, and exited five last year to take the total to 71. While the domestic IPO market was closed, we diversified our exit routes. We did trade sales, such as Wasu Media Group, or made partial exits from companies ahead of public listings, such as Wufeng Agricultural. In certain cases, we exit through a promoter buy-back. Anhui Yingliu Electromechanical was in the first batch of companies to go public since IPOs resumed, listing on the Shanghai Stock Exchange in January. It was one of remaining four projects in Special Opportunities Fund I, which has generated a money multiple of more than 10x.

Q: China Everbright and Israel-based Catalyst Equity Management are currently raising a joint vehicle. What does this say about your expectations for deal flow?

A: Our PE and VC funds mainly focus on investing in China, while our hedge fund products allow Chinese investors to access offshore stock markets. We also provide structured financing for Chinese enterprises that want to acquire assets abroad. However, I am still concerned about the country's economic slowdown, given that asset valuations have been pushed so high. It is the right time for us to look for offshore investments and Israeli companies are compelling because valuations are still low. They are outstanding performers in IT, healthcare, cleantech and agriculture, areas in which China is lagging. In addition to the Israeli-focused fund, we are also looking to acquire advanced manufacturing technologies in Germany and the US.

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• Topics
• Greater China
• Fundraising
• China
• China Everbright
• Outbound investment
• regulation
• Exit
• Fundraising