US private equity TPG’s co-founder David Bonderman said Chinese tech start-ups have an advantage due to the country’s huge consumer market and governments should stay out of the way of his US start-up Uber.
His comments come in the wake of Alibaba’s $25 billion IPO, the world’s largest ever.
“It is a very very large market, you could not do in the West what Alibaba has done here. It’s just not possible there is too much infrastructure,” said Bonderman at the SuperReturn private equity conference held in Hong Kong.
“China is second only to the US in that kind of innovation,” he said adding that many Chinese companies copy developments from overseas, smartphone maker Xiaomei makes micro-innovations in the industry, and there is also creativity.
TPG over the years has made investments mainly in software companies and also some internet firms. Bonderman sits on the boards of on-demand car service start-up Uber and home-sharing company Airbnb.
Uber has run into roadblocks due to lobbying from taxi drivers who Bonderman said have political clout. Miami passed an ordinance stating if you have a car, an Uber client would have to book an hour in advance, which undermines Uber's business model. "Uber doesn't need government help particularly but it doesn't need government interference," said Bonderman, adding: "We've discovered we're better off asking for forgiveness as opposed to asking for permission."
Responding to a question about Chinese innovation put to him by Yibing Wu, senior managing director and head of China Temasek, Bonderman said: “Being in San Fransciso gives us a bit of a leg up but I know that our guys spend half their time in China working on things too.”
Many private equity firms are scouring China for deals that are attractively priced due to broad concerns that Chinese economic growth is slowing down. “China has been oversold” Bonderman said.
TPG, headed by David Bonderman, has a long history of investing in China. It became the first foreign firm to control a Chinese bank since 1949 when it invested in Shenzhen Development Bank. The firm sold its 18% stake in 2010 to Chinese insurer Ping An for around 11 times its original investment, according to industry sources. Last year it closed the purchase of a 12.15% stake in cable TV operator Phoenix Satellite Television for $213.7 million from Rupert Murdoch’s 21st Century Fox — what some have dubbed ‘Murdoch’s Divorce Deal’.
Taper tantrum II?
TPG is present across Asia Pacific with offices in Hong Kong, Beijing, Shanghai, Singapore, Tokyo, Mumbai and Melbourne. The Fort Worth, Texas-headquartered firm has raised $3.3 billion for Asia deals in its sixth regional fund.
Its professionals have to invest through considerable volatility in the region. Private equity funds raised can vary in volume by up to 80% during cycles, noted Bonderman.
One risk on the horizon is the fallout in Asia from the Federal Reserve raising interest rates. Asian governments are trying to gold plate themselves against a outflow of foreign capital much like last year’s ‘taper tantrum’. Indonesia raised a $4 billion bond in January and a $1.5 billion sukuk in September.
“In times of fear people flee to quality which generally speaking turns out to be the United States,” said Bonderman. However he believes that rates will only rise gradually to foster an economic recovery “the Fed isn't going to do anything dramatic”.
Modi euphoria
TPG is also focused on doing deals in India, seeking out partners it feels comfortable with. It has done five deals with the Shriram Group in the country.
“India is much more interesting than it was two years ago but as always with India it is a bit of a mixed bag,” Bonderman said due to the election of reformer Narendra Modi. “The election of Mr. Modi is a turning point in many respects for India,” he added.
However, “India is suffering from Modi euphoria at the moment … but most of what ails India can't be fixed by one man in a federal system”, he said predicting there will soon be a period of disenchantment and a correction in markets.
