Warren Buffett

Fosun takes a leaf out of Warren Buffett’s book

Fosun International is looking to emulate Warren Buffett and use cheap cash for investments, as seen with its acquisition of a Portuguese insurer

PUBLISHED : Friday, 28 March, 2014, 11:51am
UPDATED : Saturday, 29 March, 2014, 2:10am

Starting from humble beginnings and building up a portfolio of businesses ranging from real estate and consumer products to insurance over the last 22 years, Fosun International is setting its sights on a new growth target: chasing Warren Buffett.

Rather than following what Buffett is selling and buying in the stock markets, the Shanghai-based conglomerate hopes to copy the success of the famed investor in finding cheap cash.

"After acquiring insurance companies in Portugal in February this year, Fosun has taken a big step towards implementing the Warren Buffett model of development," said Fosun chief executive Liang Xinjun.

Fosun has [moved] towards … the Warren Buffett model of development

Insurance companies receive a steady flow of premium income and hold the money until it is finally paid out. Meanwhile, investment returns pile up, Liang told the South China Morning Post.

Fosun bought 80 per cent of Portuguese bank Caixa Geral de Depositos' insurance unit for €1 billion (HK$10.7 billion) in February, beating out US buyout firm Apollo Management International.

The business is the largest insurance group in Portugal. Its unaudited insurance assets hit €12.8 billion at the end of last year. The deal is expected to be completed in the first half of this year.

Liang said the transaction has increased Fosun's insurance assets, and the Chinese conglomerate would continue to identify opportunities to expand or acquire insurance assets with a strong premium float, a term coined by Buffett in 1997 meaning the money an insurance firm holds but does not own.

Fosun Group was founded by four graduates of Shanghai's Fudan University, including Liang and Fosun International chairman Guo Guangchang, in 1992.

Fosun International, which was listed in Hong Kong in July 2007, has adopted a strategy of seeking investment opportunities generated by the mainland's growth, with an eye on global economic dynamics.

Liang said the company has made 49 investments, with an internal rate of return of 38 per cent, since 2007, in businesses ranging from the internet, finance and pharmaceuticals to property.

The investments include overseas assets such as a 9.96 per cent stake in Greek jewellery firm Folli Follie and a 9.95 per cent stake in Club Mediterranee, a French leisure resort chain.

Last year, Fosun bought One Chase Manhattan Plaza, a 60-storey office tower in New York, from JP Morgan Chase for US$725 million and acquired Lloyds Chambers, at 1 Portsoken Street in London, for £64.5 million (HK$689 million).

Analysts have raised concerns about over-diversification of the firm's investments.

But Liang said: "If investors still think that we are a listed company of diversified businesses, they are not following us closely."

Insurance accounted for 39 per cent of total assets after the Portuguese acquisition, up from 3 per cent prior to the purchase.

Net assets grew 12.6 per cent year on year to 39.63 billion yuan (HK$49.9 billion) at the end of last year, and net profit surged 48.9 per cent to 5.52 billion yuan.

Liang said Fosun has been expanding into private equity and financial firms, and some of its holdings were joint investments with private equity funds.

Following the purchase of Caixa, Fosun will have sufficient cash flow for new investments using its own money, he said.

Liang expects organic growth from existing businesses such as insurance and lifestyle consumer products to continue this year.

He said future opportunities on the mainland may arise as the economy changes.

"For example, people raise concerns over the ageing population in China, but I see it as an opportunity for the company. The mainland is a big market for homes for the elderly and the health care industry," he said.

The middle class will be- come mainstream on the mainland by 2020, Liang said, and demand for consumer goods will rise, creating investment opportunities.