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  • Dec 24, 2014
  • Updated: 7:09am
Mr. Shangkong
PUBLISHED : Monday, 29 April, 2013, 12:00am
UPDATED : Monday, 29 April, 2013, 8:10am

Big or small, patience may be the clue to investment success

Look at deals like TPG's investment in UniTrust and Bain's bid for Gome, and it is clear even for the biggest the road to a good return can be rocky

BIO

George Chen is the Financial Editor and Mr. Shangkong Columnist at the South China Morning Post. George has covered China's political and economic changes since 2002. George is the author of two books -- This is Hong Kong I Know (2014) and Foreign Banks in China (2011). George has been named a 2014 Yale World Fellow. More about George: www.mrshangkong.com
 

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.

Now when I ask Bain's rivals what they think of Bain's "successful bid" for Gome, many say simply: "Thank God, we didn't make it."

Again, if it could rewind the clock, would Bain make the same decision to buy Gome?

Some industry veterans caution that I should give the likes of Bain and TPG more time to prove the success of their ventures and to a degree they may be right.

Remember TPG's early investment in Shenzhen Development Bank?

The long journey with SDB was a bumpy one but in the end, it was one of TPG's most successful investments globally.

Patience means success, no matter if you are a big fund or a small one, some industry veterans say.

Talking of some big fund brands in China, here is a real story widely known in the financial community. When some KKR bosses visited a potential investment target in a not-so-developed city on the mainland, the local businessmen came out to greet them.

After a few rounds of drinks, one asked this classic question: "So, tell me if KKR has anything to do with KKK? You know, that American group we often saw in Hollywood movies?"

 

George Chen is the Post's financial services editor. Mr. Shangkong appears every Monday in the print version of the SCMP. Like it? Visit facebook.com/mrshangkong

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