VIDEO: Lunar Capital's Derek Sulger

This is already apparent in Lunar's deal pipeline, something Sulger credits to a combination of a differentiated approach and the natural evolution of the asset class.

"What we've tried to specialize in is being operationally oriented in the businesses we invest in and really focus on systems, processes, entrepreneurialism and risk management," he says. "Those have encouraged us as a firm to look for control-oriented situations. I believe you are starting to see that in China more today than when we started out several years ago."

On the natural evolution side, the contributing factors are a rationalization in valuation expectations, more domestic M&A and company founders that are either getting too old or have more businesses in their portfolio than they are able to manage. Allied with more capital and professional talent entering the industry, Sulger argues that we are seeing a shift from reactive to proactive private equity.

One of the longer term implications of this transition is greater specialization. Lunar styles itself as a specialist GP, albeit with some reservations.

"The only trepidation in saying that is historically people wanted investors Chinese PE funds to do what other people are doing," Sulger says. "As the landscape broadens, there is going to be a huge emphasis on how you differentiate. It's also very necessary. Looking at it from an LP perspective, I think a lot of funds do the same thing, invest in the same deals. Specialization from a risk management standpoint is therefore important."

This change of focus is being accelerated by a tougher fundraising environment globally and the slowdown in lucrative pre-IPO deals in China. "If you are honest about private equity in China, multiples arbitrage has delivered some incredible returns but for very short periods of time," says Sulger.

"Building a strategy around that and just assuming there is a lot more low-hanging fruit on the multiples arbitrage front is foolhardy. Private equity will have to bring something more to the table."

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