The emerging green sector in China offers investors an alternative investment destination. But even within the green sector, some investments are more mainstream than others.
Private equity has taken its time to enter the green finance space, but a two-year-old China-focused fund has quickly found its feet in the burgeoning market.
As well as focusing on electric vehicles and more traditional green ventures such as solar power, the US-China Green Fund has an altogether more left-field route into the growing green sector.
Since January 2017, the fund has invested in one company, AIpark, that offers smart parking to bust traffic jams and another, Hos Joy, that hopes to reduce energy use by better monitoring home appliances. Its investment in the two companies amount to $120 million.
The remaining $280 million has been invested in more mainstream green investments, such as inthe power and energy sector, over the last 18 months.
In an exclusive interview with FinanceAsia, chief executive officer Dr Bo Bai explains where he sees value and opportunity in the green sector in China, and why he believes private equity investment in green companies is poised to boom.
Q What was the rationale behind setting up the fund
A The fund was born out of an agreement between the US and China at government level as part of efforts towards enhancing global cooperation and economic governance, [a junior ministerial level discussion bewtween China and the US held in 2015]. in June 2016. Following the China government’s enhanced environmental guidelines in 2015, the fund officially launched in November 2016.
The fund is focused on investing is sustainable green development in China by taking advantage of new technology from around the world, in particular in the US, and bringing it to China.
Q How is the fund different from more mainstream private equity funds?
A China is in need of green development which has been acknowledged by the government initiatives over the past three years. Most people when talking about green finance immediately think of green bonds and other debt instruments. For us, we saw the opportunity to marry capital with technology in China to invest in companies that are leaders in their respective sectors.
One third of our staff are dedicated purely on research, identifying new opportunities for us. However, we also have industry experts in the fund, along with the more traditional investment banker types, so we can evaluate each opportunity not only from a banker’s perspective but also from an engineer’s perspective.
Critically we also invest time and effort in post investment research, to ensure our investment is being managed well and see what other opportunities there are in the same sector.
Q Along with the more traditional green investments, such as energy and manufacturing, you have put considerable investment into two companies that are off most people’s radar. What attracted you to those companies?
A Why would a green fund try and solve a parking problem? That’s not what most people would think a green fund would invest in. But it is green. Some statistics show that parking problems cause between 10% and 20% of traffic jams. And traffic jams cause pollution, waste fuel and time.
AIpark uses CCTV cameras around cities to see what parking spaces are available in real time. Then they do image recognition of your car and link it to you via the app on your phone. So, you know where there is a parking space, and also it is linked into the payment system so it is all done automatically.
We have just finished the trial in Shijiazhuang, the capital city of Hebei province with six million people, and recently we won the technology bid to roll out the system in three districts in Beijing. Last week we won the bidding to roll it out in Guangzhou and we are looking to roll it out across China.
The second company we have invested in is Hos Joy. They are trying to make people’s homes greener, smarter and more sustainable. Areas in your home such as air conditioning, heating systems, air purification and water purification systems all have one thing in common — they all use energy.
In the past, if your air conditioning broke down you would call out an air conditioning repair service. The same for any repairs on the rest of your home appliances. Does that make any sense? Is the market small? No, the market potential is huge.
This market is extremely fragmented. Hos Joy has over 600 outlets around the country and they will come to your home wearing cameras and perform the new installation and repairs whilst you can watch them from your phone.
And they will put in a central control system, so that everything is connected to maximise energy efficiency. And this is where our research comes into play, identifying and integrating all these systems to make your home smarter and more sustainable.
And Hos Joy focuses on the aftermarket as well, so they serve the customer. If your air conditioner breaks down, you can contact them immediately and they will send the repair team around, but also they can check all the other systems at the same time.
This saves time, energy and gets rid of having to call several different companies. It makes sense.
Q The fund has more than doubled its money over the last 18 months in terms of return on investment. Do you see any downside in investing in green and sustainable companies?
A We see ourselves as the green version of impact investors. There are many areas in China that are ripe for green investment. Alongside the traditional power and electric vehicles, we see huge opportunities in green production and consumption. We are looking closely at waste management for example, an area not traditionally seen as being green.
There are lots of opportunities as an investor in the green sector in China. Technology and capital have the capability to transform our lives, and at the same time provide a good return for investors.