Though the Street may be wary of China’s current economic trajectory, Willis Towers Watson, spoken to by Private Equity Wire, remains persuaded by the ability of China’s on-the-ground and sector-specific GPs to stay on course.
Though the Street may be wary of China’s current economic trajectory, Willis Towers Watson, spoken to by Private Equity Wire, remains persuaded by the ability of China’s on-the-ground and sector-specific GPs to stay on course.
“The investment opportunity there is fantastic,” stated Andrew Brown, Head of Private Equity Research at Willis Towers Watson. “The growth compared to other developed markets is still strong, but you need to pick your spots and invest in managers who understand Chinese government policy.”
The Wall Street Journal recently commented on the “years of red flags” leading up to the recent Evergrande crisis, and these past months have seen the Chinese communist government crackdown on different areas of its economy, including tutoring, gaming and crypto trading, leading to several sectors taking a financial hit.
Brown, whose firm advises on approximately USD1 billion of investment in private equity funds, co-investments and secondary markets each year, added that these local managers, “need to understand which sectors will attract the government’s attention, and realise when to pivot away from certain investments early enough.”
Brown commented that Willis Towers Watson works with managers who are “on the ground, speak the language, understand the culture, the nuance, and pick the right groups to back.”
The investment advisor noted the importance of working with managers who know the Chinese markets inside out, and understand its nuances, highlighting the opportunities available to clients in Chinese markets, provided that a company is working with the right managers.
Brown explained that investments in private education and tutoring in China are an example of when domestic managers were able to identify when to “pivot” away from a particular sector. Since the Chinese government introduced strict regulations regarding private online tutoring in summer 2021, the formerly booming sector has taken a financial hit.
He commented that the Chinese model was to “grow at all costs,” but that, when an overwhelming proportion of Chinese students weren’t accepted into their first-choice universities, despite having paid significant amounts of money for tuition, the Chinese government stepped in and changed the legislation. This measure was taken to assuage financial and academic pressure on Chinese parents and students, since these universities have limited spaces, causing these markets to become less secure, and leading to “more knowledgeable investors pivoting away from private education.”
Brown stated that Willis will continue to invest in Chinese markets, and plans to grow its investments there in the future.
