Riding China’s Growth to Deals Elsewhere – NYTimes

Posted on April 21, 2011 by

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Guo Guangchang, one of the most prominent investors in China, is betting big on the fast-growing domestic market.

But increasingly he is looking to make those deals outside the country, in Europe, North America and the rest of Asia.

“We are looking at opportunities related to China’s momentum,” said Mr. Guo, the chairman of Fosun International, one of the country’s largest private conglomerates.

Momentum is the reason Mr. Guo is hunting elsewhere.

Amid the country’s rapid modernization and booming middle class, China has become a beacon for private equity and other investors.

Global giants are setting up partnerships with local players like Fosun. Chinese nationals have left prominent jobs at United States-based firms like TPG Capital and Goldman Sachs to start their own funds. Last year, China’s private equity industry raised $27.6 billion, more than double the amount in 2009, according to data from Zero2IPO, a Beijing-based research firm.

With capital flooding the country, local companies are fetching top dollar — or rather renminbi. So established deal makers like Mr. Guo are trying to find undervalued foreign companies that could eventually become significant players in China.

“The situation has reversed,” said Ralph Jaeger, a senior research consultant for Cambridge Associates, an investment consultancy firm. “Several years ago, Chinese companies were cheaper. Today you have to go outside China to find companies at a discount.”

In some ways, Fosun is the Chinese version of Berkshire Hathaway, albeit on a smaller scale — a diverse conglomerate that operates in a number of different industries.

An admirer of Warren E. Buffett’s long-term investment strategy, Mr. Guo and three fellow graduates of Fudan University started the company in 1992 with $4,000 in capital. Since then, it has grown into a $6.3 billion holding company with dozens of investments in health care, retail, real estate, mining and finance. The conglomerate’s public offering in 2007 raised $1.5 billion, helping bolster Mr. Guo’s net worth — now an estimated $2.8 billion, according to Forbes magazine.

Fosun has also become a top choice for United States private equity firms looking to develop joint ventures on the ground in China. Such partnerships are crucial for foreign players, in part to navigate the fraud in the marketplace and the regulatory hurdles, said Shaun Rein, the managing director of China Market Research Group, a consultancy firm in Shanghai.

It can be a mutually beneficial relationship. Blue-chip international firms give Chinese companies like Fosun access to a deep well of financial knowledge, a critical resource for those with global ambitions.

In 2010, the Carlyle Group teamed up with Fosun to start a fund focused on high-growth companies with a “business nexus to China.” The previous year, the two firms made a joint investment in the Guangdong Yashili Group, a Chinese infant formula company.

Prudential Financial recently committed $500 million to a buyout fund run by Fosun. Mark B. Grier, the vice chairman of Prudential, which is based in the United States, said it picked Fosun because of the conglomerate’s intimate knowledge of the Chinese market and government. He also pointed to the opportunity for Fosun to leverage its existing portfolio as it nurtures new investments. For example, he said, one of its holdings, Shanghai Forte Land, is a major property developer in China, which could benefit from retail investments.

“Brands or business that have not been optimized in China present a major opportunity,” Mr. Grier said. “Fosun can see those opportunities, and they can enhance the potential for success because of their specific knowledge of China.”

The new portfolio, called Pramerica-Fosun China Opportunity Fund, will put Mr. Guo’s strategy to the test.

In particular, the Fosun fund will focus on the behavior of the Chinese consumer and related industries like retail, restaurant chains and hotels, and will look for companies based outside the country.

The parent company has already made several larger investments that play off this theme. Fosun recently acquired a 9.5 percent stake in Club Méditerranée, the French resort company more commonly know as Club Med. With the guidance of Fosun, Club Med set up a ski village in Yabuli, a resort town in northeast China that is a magnet for wealthy Chinese tourists.

“Building a big brand in China can take 10 to 20 years,” said Mr. Rein, the managing director of the China Market Research Group. “If a company like Fosun can buy a well-known foreign brand and introduce it to the Chinese market, it could take market share away from younger companies.”

Mr. Guo said the fund hoped to replicate Fosun’s success with Club Med with other foreign companies — using its skills and resources in China to help businesses plant a flag in the region. But the new private equity fund will make smaller deals, typically about $60 million or less.

“We know China best,” Mr. Guo said. “If a company has a good story but no presence in China, then we would like to help it.”

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