Every global investment bank needs a rainmaker to bring in the big deals. And in Western markets, senior investment bankers are themselves becoming competition by setting up small boutiques that are getting in on big advisory deals.
In China, however, the definition of a rainmaker in investment banking is changing. Previously, big-hitting investment bankers with close government ties, working for large global investment banks would present themselves as the bridge between east and west and lead the big ticket deals. Take Fang Fang, the former head of investment banking a J.P. Morgan in China, who was described by the FT as vein able to provide a “an acceptable face to both sides”.
Most investment banking deals in China used to come through the gigantic state-owned enterprises. If you didn’t know anyone in the SOE sector, or have links with senior Chinese officials, your chances of getting into the ‘inner circle’ were severely limited. Hence the ongoing scandal surrounding the recruitment of ‘princelings’ into global banks in China.
However, SOE deals are limited. After more than ten years, such deals with important state-owned clients have almost dried up. Yet, Chinese banks continue to dominate the local market. One thing is conspicuous – a lack of rainmakers in the senior ranks that can bring in lucrative deals. They keep on winning nonetheless – how?
For a start, global banks and local Chinese firms don’s always look at the same market. “They have different focuses,” says Sarah Xiao, founder of CareerLead, a Beijing-based executive search firm in the financial services industry. “Global firms are strong at cross-border deals, while local firms focus more on A-share market. They have a good relationship with China’s securities regulatory commission too.”
When it comes to domestic deals, China has its own unique system. For example, China issues sponsor licences to bankers who play a leading role in A share IPO deals. The senior bankers at global firms, having spent many years abroad in the Western system, are completely out of touch with this requirement. But Chinese firms have plenty of licensed sponsors because they have been working on the domestic market for years.
China’s A share market initially started as a mechanism to help troubled state-owned enterprises to gain access to public money in the hope to turn things around. Most of these SOEs are not the type of national champions we see in the global market. Instead, they were just badly-run local enterprises with high-piled debts under the mandate of local governments. They were smaller in scale, their businesses unattractive to international investors, and many of them were never going to make into global markets anyway. Global banks just haven’t paid them any attention.
The big issue, though, is cultural differences. Most senior investment bankers are described locally as ‘sea turtles’ (it sounds similar to ‘returned from overseas’ in Mandarin). They know global markets, but in the smaller A-share market they will have to deal with local businessmen with little or no exposure to the western way of working.
“A returnee has to deign to these local bosses in order to do business with them,” says Alina Yang, a consultant at Shanghai Cornerstone Global Partners, a search firm. “You won’t win business if you can’t talk in the same language with them. It’s a massive challenge.”
But global banks are starting to fight back. One Hong Kong-based analyst with a big American bank, who asked not to be named, admits that doing big deals are no longer as easy as five or six years ago. It’s much more common for big deals to fall apart these days. In order to make up for the revenue losses, global banks are increasingly targeting smaller deals.
This all means they need to gain access to China’s local enterprises and regulators too, just like the local securities firms do. But how? Rainmakers in the traditional sense don’t exist in Chinese firms, but experienced bankers with a good understanding of Chinese business and the right connections are increasingly being hired by global banks.
One Beijing-based headhunter, who asked to be anonymous because of client confidentiality, said global firms such as Goldman Sachs and KKR have already recruited a number of local “rainmakers” who have very strong government relations. “They don’t need to do anything else, ” the headhunter said, “all they do is making calls, because they have networks.”