A reliable guide can be helpful in the opaque world of private equity in China. That’s where Frances Du comes in. She’s spent time as a venture capitalist, at GIV Venture Partners, and as a corporate executive, at Intel and Microsoft. She is now head of China private equity research for consultancy JL McGregor & Company. Du talked to CHINA ECONOMIC REVIEW about Temasek, the Hopu Fund and a new law that could boost the number of RMB private equity funds in China.
Q: What do you think about Temasek putting in half the capital for the new US$2 billion Hopu Fund run by Fang Fenglei and Richard Ong, who are both connected to Goldman Sachs in China?
A: I was not surprised at all. Temasek has been the anchor investor in several China-focused funds. This time, of course, the number has been significantly increased compared to their other investments.
Q: Could it be argued that Temasek is not a sovereign wealth fund because officially the Singapore government doesn’t influence its management?
A: Their China plays are more like a professionally managed private equity fund. They have been an anchor investor in a number of PE and venture capital (VC) funds and their investments have been near double-digits (in the billions) in China. Along with their portfolio funds they do some direct investments as well. But in China, they’re just like professional money managers.
Q: Richard Ong was denied a promotion last July to head Goldman’s China joint venture because he failed a mandatory Chinese-language exam. What happened there?
A: That was kind of a ridiculous requirement. All it did was give him an excuse to go into private equity. Guess what, he’s joining up with Fang Fenglei, who is one of the top dealmakers in China.
Q: You say a draft Foreign Invested Partnership Law could encourage more RMB-denominated funds. How so?
A: Elsewhere around the world, VC or PE funds go with a [limited partnership] model. If this proposed law finally comes in, then US investors, who are more familiar with the limited partnership model, can have their way in China. But currently it’s not possible.
Q: And you think it will be introduced in the second half of this year?
A: I heard some rumors. Firstly, the draft has been on [the Ministry of Commerce] website since January. The regulators have been discussing it for almost 18 months now. Mofcom, with the coming People’s Congress, needs some time to look at these smaller issues. I don’t think it will come out in the first half of this year.
Q: What effect will a Microsoft buyout of Yahoo have in China, given that Yahoo owns a 39% stake in Alibaba Group?
A: I guess the luckiest person is Jack Ma; he’ll get even richer. Microsoft will want to buy back his piece of Yahoo, which is really not worth much anymore. But they’ll have to pay Jack a lot of money for it. So his golden touch could strike again.