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What it takes to break into private equity in China

Investment bankers in Asia are increasingly ditching the bright lights of Hong Kong for private equity roles in Mainland China. Like Western markets, making the switch is tough and only a select few make it to the buy-side. One ‘globally-minded’ Chinese investment banker who used to work for J.P. Morgan in New York moved to China to join a private equity firm while still in his 20s. Here is his sage advice on breaking into a PE role. He spoke to us anonymously.

How does the work in the IBD of a global investment bank and compare with PE?

They have different requirements for analysts. In IBD, a lot of your time is taken up doing presentations, pitch-books, etc. It’s very routine and repetitive. After a while, you get bored. And if you stay in IBD, you will always be on the sell-side where your revenues only come from fees. There are no other long-term investment returns.

Private equity is good for your career development because makes long-term investment, so it’s positive for people who have a long-term career plan aren’t simply focusing on the next deal. Private equity firms’ investments are also more straightforward and form part of your track record if you can do a number of successful deals.

But big global banks can provide very solid training for your technical skills. You will learn attention to detail and this means you rarely make mistakes. This is a  solid foundation, and this serves you well throughout your entire career.

Why did you choose to give up IBD and return to China for PE?

As I said, PE not only gives you a long-term investment return, but also builds up your personal track record. For me personally, it’s important to create a long-term career plan. The other thing is the pay rise. When I moved to PE, the pay rise was about 20%. I was still in my 20s at the time, so a 20% jump in pay was quite attractive.

The hours at PE firms are much better than IBD too. In PE, unless you have new projects on a daily basis, you don’t have to leave office at midnight everyday. So, I’d have jumped even without the pay rise.

You stayed abroad for quite a while. Did you encounter any “reverse culture shock” when you came back?

I wasn’t quite connected to the ordinary Chinese life when I came back, but I didn’t even realize that. I thought I was OK. But now I understand the situation much better, and looking back, I have to admit that I did go through a few months’ “adjustment period”. Once I got over it, I felt a lot more at ease doing business in China.

You do a lot of recruitment these days. What type of people do you want to hire? What requirements do they need to meet?

I look at candidates’ technical skills very closely, particularly for junior roles. So I prefer those who have been rigorously trained at a global bank. Apart from that, those who come from accounting background or who have transaction experience are welcome too, because they know how to carry out due diligence and how to do advisory work. As such, we’d like to consider people from the Big Four as well.

For more senior roles, I prefer someone who has international IBD or PE experience, just like myself. Ideally he is originally from China, studied and worked abroad for a few years before coming back. This way he knows how things work in both worlds.

Have you found out any unique ‘Chinese characteristics’ in China’s PE industry?

Indeed there are. It’s largely to do with government policy. PE companies these days fall into two categories in terms of currency: RMB firms and USD. There are strict policy guides as what sector is open for USD PEs to invest in.

To expand on this, Chinese government issues a Catalogue of Industries for Guiding Foreign Investment, and we need to follow this guide carefully when making investment. For example, USD PEs cannot invest in media companies, but are allowed to invest in consumer goods firms. There is nothing we can do about this.

This is affects people’s career choices, because PE professionals care a lot about what deal they are allowed to invest in, so the difference in treatment on a policy level does can sway individuals to a particular type of private equity fund. Normally RMB PE firms pay less than USD ones, but they are still able to lure people away from USD firms because they enjoy a lot more policy preference.

How do they compare?

USD PE firms are generally massive in size, more transparent in operation, and deal with bigger projects, given that most of them are professional institutional investors. So although they are not allowed to invest in certain sectors, they still have huge investment opportunities and are still able to make money.

What advice do you have for young students who want to join a Chinese PE firm later in their career?

My first piece of advice would be to go to a top university in Europe or the US. While you’re in school, do everything you can to get an internship with a top bank or fund, because internships are crucial these days for getting a job upon graduation.

While working, try to do as many China-related projects as possible. A shares, H shares, US IPOs, are all OK. This will give you valuable transaction experience. And it would be even better if you could gain some M&A experience, because this will come in handy once you join a PE.

I know there are many young Chinese working for big banks in Hong Kong these days. This is good, as Hong Kong is at the doorstep of Mainland China. But it also handles a lot of deals in Southeast Asia, so my advice would be: if you aim to return to China eventually, then go for Chinese projects rather than Southeast Asian projects, because ultimately, PEs in China would look at how much China-related experience you have.

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