The founder of one of China’s biggest private equity investors said that China’s tech companies are turning a corner after a recent crash that wiped out nearly $2 trillion in market value at its peak.
Fred Hu, a former Goldman Sachs Group Inc. salesman who started the $17 billion Chinese private equity firm Primavera Capital, said that investors are now interested in the sector because of reassuring messages about regulation, steady earnings, and low prices.
In a recent interview, Hu, the chairman of the company, said, “This could be the start of a new era for China tech.” “There’s a lot of value to be found,” he said, but investors still need to be careful because these companies are so high risk.
As investors around the world start to move back into tech stocks, the private equity mogul’s views are one of the strongest statements yet in favour of a turnaround. The Chinese Communist Party’s crackdown, which has been going on for a year, is starting to show signs of softening around the edges, but insiders in the industry see a much worse picture.
Private Equity International ranks Primavera as the fourth largest private equity firm in China. The company was started in 2010. According to the company’s website, it has invested in Yum China Holdings Inc., which runs fast-food chains, XPeng Inc., which makes electric vehicles, and Alibaba Group Holding Ltd., which is a big e-commerce company.
Hu joins banks like JPMorgan Asset Management and Goldman Sachs in betting on a recovery for China’s homegrown tech giants. Investors have been drawn to the stocks by the People’s Bank of China’s promise to keep monetary policy supportive.
Reports that a regulatory investigation into Didi Global Inc. is over and that steps are being taken toward a possible relisting of Ant Group Co. have made people feel better. This month, a measure of Chinese tech stocks went up by 11%, which is the most in almost two years.
Even though many investors have left the tech sector, the investor has a generally positive view of tech companies. In March, he called a selloff in Chinese stocks “excessive” and said Alibaba offers “deep value.” This year, Primavera was one of the first companies to file to go public in Hong Kong as a special purpose acquisition company. Its goal was to focus on high-growth sectors in Greater China.
The longtime tech supporter was an early investor in billionaire Jack Ma’s Ant Group and used to sit on the board of the fintech company as an independent non-executive director.
Hu, who is also on the board of UBS Group AG, a key international lender to China’s billionaire entrepreneurs, said that Hong Kong’s IPO pipeline remains “very robust” with high-quality companies that will continue to attract investors. He did not comment on Ant’s IPO progress, though.
Bloomberg data shows that the amount of money raised by the city’s IPOs dropped from $12.5 billion in November 2020, when Ant’s listing was pulled, to just $139 million in May.
Talent Loss
Along with slower dealflow, Hong Kong’s strict quarantine rules and Beijing’s tightening grip have made people worried about a “brain drain,” especially in the financial sector, which employs a lot of people from other countries. The number of new visas given to foreign workers in financial services dropped to 2,569 in 2018, which is almost a 50% drop from 2018. More and more bankers are leaving the city to find work in other financial hubs like New York, London, and Singapore.
Still, private equity hasn’t been hurt by the departures, Hu said. He also said that Primavera is still getting “tremendous interest” in applications for jobs in Hong Kong.
Hu said that once Covid policies settle down, people with good financial skills should move back to the former British colony. He thinks that the new mayor of the city, John Lee, should try to get rid of or at least loosen many of the “unnecessary restrictions.”
“It will really hurt Hong Kong’s economy and make us less competitive internationally,” Hu said about the strict Covid rules. “Make Hong Kong more like the rest of the world by making it less strange.”
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