CDH chairman eyes China cross-border opportunities

"Traditionally we were mostly doing growth capital, finding interesting companies at the growth stage and helping them through to the capital markets. But now Chinese companies have grown very big, the Chinese consumer market has become globally important," Wu told the Hong Kong Venture Capital and Private Equity Association's (HKVCA) Asia forum. "Cross-broader transactions have become interesting."

CDH already has exposure to this trend, with longstanding portfolio company Shuanghui International last year agreeing to buy US counterpart Smithfield Foods in a deal worth $7.1 billion including debt. CDH helped restructure Shuanghui and holds a 33.7% stake, while Goldman Sachs, New Horizon Capital and Temasek Holdings have smaller interests. The company is thought to be planning a Hong Kong IPO.

In Smithfield, Shuanghui has a partner that has already been through the vertical integration process the Chinese firm is seeking to emulate. This is seen as key to improving efficiency, quality and food safety.

Wu also highlighted the investment opportunities that will come out of state-owned enterprise reform - the government wants to restructure these businesses to make them more efficient and competitive - logistics and the emergence of a "modified new economy."

The latter is most apparent in the evolution of retail into an online and shop front environment. He cited eHi Auto Services, a Shanghai-based car rental company that now receives 87% of its orders via the internet and mobile devices. A CDH Ventures portfolio company since 2009, eHi received $100 million in funding from Ctrip International, China's largest online travel agency, last December.

As to the challenges facing China-focused GPs buffeted by macroeconomic headwinds, Wu warned that LPs will still demand fund performance and cash distributions. This requires private equity firms to be disciplined, quick to react to problems and mindful of downside protection.

Fund managers must also adjust to China's changing financial system and the increasing regulatory burdens that come with exposure to multiple strategies.

"Previously we're only managing US dollar funds, we were only a small branch of foreign direct investment," Wu said. "Since 2008, we've entered into different types of regulatory frameworks as a state asset manager."

CDH currently manages assets across private equity, venture capital, real estate, and public equities, using Qualified Foreign Institutional Investor (QFII) quotas to invest in domestic A-share market. The firm is in the process of raising its fifth US dollar fund, which has a target of $2 billion a hard cap of $2.5 billion. A first close of $1 billion was reached in early 2013.

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• Topics
• Greater China
• Investments
• GPs
• Consumer
• China
• buyout
• Growth capital
• Consumer
• GPs
• CDH Investments Management