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Chinese PE funds get some serious poaching power

Last year was a watershed for China’s private equity industry because for the first time local RMB funds raised more funding than their foreign rivals. With Chinese PE firms expanding at a fast pace and becoming more international, high-level professionals are exhibiting increasing interest to work for them.

The PE industry has soared in the past two years with local funds keen to take advantage of investment opportunities brought by China’s economic growth. Local RMB funds raised US$3567m in 2009, much more than the US$2289m raised by overseas firms, according to statistics from Zero2IPO, a PE research institution in China.

Senior Chinese bankers are becoming more interested in private equity careers. Fred Hu, former chairman of Greater China, Goldman Sachs, recently quit his job after 13 years with the US bank. His plan is to establish a PE fund focusing on Chinese deals. But Hu is just following in the footstep of his peers. Back in 2007, Fang Fenglei, Hu’s Goldman colleague, set up Beijing-based Hopu Investments.

“The trend is emerging that senior partners tend to work for local PEs. They are usually overseas educated with solid working experience in China, and are capable of raising funds overseas and making good investments in China,” says Hua Yi, partner, Adfaith Management Consulting.

With more top-level professionals joining their ranks, domestic PE funds are rapidly catching up with their foreign rivals in terms of talent. “The gap between local and foreign funds is narrowing,” comments Vincent Liu, founder and managing partner of Orion China, an executive search firm.

The rise of Chinese funds can be mainly attributed to their better understanding of local markets and regulations, and a deeper connection with local industries.

Nevertheless, they are still on a learning curve. Chinese candidates admire the professionalism, transparency and management style of foreign PE firms.

An investment manager at a local PE fund, who asked not to be named, remarks: “Foreign funds are more professional and better managed and offer higher fixed salary. Local funds operate in a flexible way, but some are ill-managed. They don’t offer a good fixed salary, but you have both odds to get a very handsome bonus or be paid poorly.”

Hua believes that “fusion” – combining advanced Western systems with Chinese execution –
will become the key word for the PE industry in China.

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