Mr. Shangkong | Big or small, patience may be the clue to investment success

Does big really mean good, or even successful? Or is it time for us to think differently? I raised these questions in a report I wrote last week about foreign investments in China, which attracted mixed reactions from readers.

I examined the performance of some of TPG's and Bain Capital's investments in China in recent years and the conclusion, in short, was that more people were beginning to realise that size or brand did not guarantee success when it came to making investments in China.

TPG's investment in a Shanghai-based financial leasing company, renamed UniTrust and now up for resale, is widely considered a textbook case study in the private equity industry on how important it is for foreign investors to look into the background of local managers of a portfolio company and how to manage relations on the ground.

TPG later improved the situation after lessons were learned, and now some industry watchers say they expect it to earn a good return when it finds a buyer. In other words, in purely monetary terms, the TPG-UniTrust tie-up may read like a success story. But in terms of the experience, it is obviously not a very happy one, and if TPG could rewind the clock, I wonder if it would again make the decision to acquire UniTrust.

Bain's investment in Gome, China's No 1 home appliance retailer at one time, is widely considered another textbook case in the private equity industry. This story is more complicated as Gome's co-founder and largest single shareholder, Wong Kwong-yu, is in jail, yet he continues to exert influence over the board and even make key decisions for the Hong Kong-listed firm from behind bars.

Amazing? Welcome to China!

Those who have good memories may remember Bain was not the only bidder for Gome when the deal opportunity emerged in 2009. Many big fund names such as KKR, Carlyle and Warburg Pincus all joined the bidding war, which Bain won in the end.