If you want a job in China’s burgeoning private equity sector, you'd better brush up on your knowledge of bling brands and luxury cars.
China is the Asian country most likely to see PE deal activity in 2014, according to a report from EY, while the ending of China’s IPO freeze in January is making it easier for funds to pursue exit strategies.
But as PE funds expand, they are trying to recruit business people directly from companies in fast-growing but cashed-starved sectors of the Chinese economy – investment bankers are increasingly being frozen out of their hiring.
The ‘beer test’ and other harsh realities of switching from investment banking to private equity
Eight exciting things you should know about investment banking jobs in Hong Kong this year
The ancient Chinese cultural concept that could save your banking career
“While many new funds moved into the Chinese market in 2010 and 2011, not all of them were successful,” says Bob Partridge, private equity leader for Asia Pacific at EY. “Now the market is maturing and both Western and local funds in China are trying to find sweet spots in industry sectors rather than being generalists.”
They are also changing the way they hire. “Earlier this decade funds needed to staff up more quickly than they do now, so they mainly took on finance people because they were readily available,” Partridge tells us. “But some of them of weren’t such good PE deal-makers – there was too much focus on finance skills and not enough on sector knowledge.”
PE firms are now on the hunt for professionals who work in their target sector and can help them spot investment opportunities. “For example, a fund that’s investing in the chemical sector would now usually prefer to hire someone from the China office of a big global chemicals company, rather than investment banker who’s done chemical deals. That’s a big, recent shift in focus.”
Partridge tips the consumer sector as China’s top investment destination this year, partly thanks to expected double-digit growth in retail sales of luxury goods. The high-end auto space is also seeing frenzied interest, including from global giants KKR.
Recruiters in China say PE funds are still growing their headcounts, but are hiring less rapidly and more selectively than two years ago. “The market in 2014 is quite different from past years – it’s more mature, professional and rational, which means recruitment standards are more demanding,” says Aviva Tang, a consultant specialising in PE at search firm Pro-Matrix in Beijing.
As well as strong sector knowledge, due diligence experience and deal-sourcing ability are both critical, she adds. “After the market ups and downs of last few years, good deals are more difficult to find, so candidates must have a strong commercial sense as well as financial skills.”
While Westerners dominate the senior management ranks of some global PE firms in Asia – TPG, for example, is relocating Tim Dattels from the US to co-head its regional operation – the bulk of PE hiring in China, especially at execution level, targets local professionals. Returnee Chinese nationals who have worked in mature markets are in particular demand.
“This is because private equity in China is still relatively primitive,” explains David Koo, associate director of Profile Search and Selection in Hong Kong. “We face a shortage of people who can bridge two cultures – who can deal with local people in PRC companies while having sophisticated modelling skills and the ability to present ideas to the investment committee.”
New recruits to the PE world in China face a volatile, fragmented market, with hundreds of funds based not just in Shanghai and Beijing, but right across China’s provinces. Domestic private equity houses have been increasing their share of buyouts, from 18% in 2006 to 45% in 2012, according to EY figures. “The sheer volume of opportunities is huge, but not all the opportunities will be great ones,” says Partridge.
Still, for candidates, PE in China has an allure similar to that it enjoys in the West. “China is essentially a capitalist, entrepreneurial country and private equity embodies this spirit,” says Partridge from EY. “There are many people for whom leaving the big corporate world to create new success in PE is very appealing.”