Interview Series #5 - Private Equity Senior Associate

NiuShi's picture
Rank: King Kong | 1,018

Here is our final interview in the China Finance Interview Series. It is with a senior associate at a local private equity firm. After going to a non-target but big state school in the U.S. he landed at job in management consulting and then transferred into private equity once back in China.

This is our last posting of the Interview Series, so stay tuned for a double posting next time: 1) a fresh new column for all you college kids out there scrambling for a job during your senior spring, and 2) a digest of the best comments from these past five interviews.

How did you get into Private Equity?

Previously I was working at a management consultancy (MBB) in a second-tier city in the U.S. I did that for three years after undergraduate in the U.S. but the whole time I had a plan of returning back to China to work in my family's company. After gaining experience in consulting, it was actually relatively easy to transition into private equity in China. I received a few job offers to work at firms both in Hong Kong and on the mainland, but ultimately chose the mainland because that's where I see long term potential for any business having to do with China.

Why did you choose to enter Private Equity?

As I mentioned before, my long term goal is to take over the family business from my father. Coming out of undergraduate, I thought that management consulting would be a great start and lay a solid foundation for all other business work in the future. After spending three years at (MBB) I thought it was time to return home, but I still don't think I have the necessary skill set to become a leader in my family's company. It has almost one billion yuan in sales each year ($170 MM USD) and we are planning over the course of the next few years to acquire some smaller local players to aid our nationwide expansion westward.

My three years of PE experience has helped me greatly in this regard and I know I will be able to contribute meaningfully during these investments and acquisitions. My father actually wanted me to join the company right away, but I said no. And now he agrees with me that I made the right decision. I will probably spend the rest of my life with my family company, so three more years of external experience.

What are your current responsibilities?

At first it was a lot of grunt work. Industry research, reading 10-Ks of public companies and seeing how that was held up or contradicted our investment thesis for a live deal, etc. As of the past 6 months I've focused mainly on deal sourcing, which means I generally am speaking with owners of businesses in Central and Western China that may need capital injections or international partners to help them grow.

What are the challenges associated with that? What parts do you enjoy the most?

Well - as far as what I enjoy the most: speaking with entrepreneurs, their families, and other decision makers in those businesses is a real pleasure. You not only get to learn a lot about their businesses, the respective industries, but also you get to learn about their lives, motivations, goals, fears, everything! It's a really personal side of the business that I wasn't really expecting and hadn't been exposed to as much in my previous consulting work or even in the first two years at the PE firm. Challenges are many: figuring out whether or not you can trust the business owners is something my colleagues frequently talk about, but I think it actually might be harder to get them to trust you as an investor.

Many of these families don't really understand the business model of private equity. They would much rather deal with a private investor or a family friend or connection. In my experience, the 'warmest' leads I've had are when someone who knows the business owner connects the firm to them, rather than connects us to the firm. In that order, I mean. Persuading a business owner who does not really want to give up financial control of their baby, this thing they've created and nursed and grown and cared for, hasn't been easy. Perhaps if I was older and could point to a longer track record in private equity it might be different. I don't know.

What is different from your current work than what you did back in the U.S.?

Being a management consultant and private equity analyst require a lot of the same skill sets. Many of the parts of individual projects look incredibly similar and in fact may even be indistinguishable from each other. However the attitude is different. As a consultant, you're fixing problems that are already present, while here I'm more looking into the future and trying to predict what issues will arise. I think private equity requires a great deal of experience to be successful, because you don't always have all the facts you need to make the decision at hand. Plus, the stakes are way higher. In PE, obviously, you actually put your own money on the line whereas in consulting your recommendation might actually turn out to be complete B.S., but you'll actually probably still get another contract from the same company!

What do you think is the next step in your career?

I think I'll remain in my current job for another one or two years and then join the family business as a business development manager or acquisitions manager.

So you're not thinking about Business School?

No. No reason, really. I don't think I would gain a lot from the academy side of things. Maybe a little marketing or a little leadership training or something. From a networking perspective, yes, it would be valuable, but as a business owner/investor, I don't think it would be worth that time spent. I actually think that if I wanted to go back into consulting or work in investment banking, two service businesses where sales is a huge component of success, then I might. After all, if you go to Harvard or Stanford, for instance, half of your class then becomes your client five or ten years down the road. But for me, as a future investor and business owner, it's much less important.

What would you recommend for someone who is trying to work in private equity in China?

It's a super local business. If you're trying to source deals and you're not local, then good luck. Not to say it hasn't been done, because there are some great guys out there, both white guys and also some Singaporeans/Hong Kong guys. But unless you're from the mainland of China, for whatever reason, it's going to be more challenging for you. If you're not looking for China specific deals and just looking across Asia, then it becomes easier, but having a local team on the ground is going to be a huge benefit. Even if you're looking for a deal in Taiwan, for instance, you should have some Taiwanese people on your team. Looking for a deal in Chengdu, get someone from Sichuan. Overall, I think that there's more emphasis on the operations side of the business right now - companies are more interested in someone with operational experience - so consulting seems to be a good route. I know a lot of other private equity guys that were in consulting before their current roles as well. Bankers seem hesitant to move to private equity in China also because there's less money in the form of compensation, generally speaking.

What do you mean?

Well let's say in the U.S. or the U.K. a private equity first year associate gets paid something like $150 K USD for a year's work, bonus included. In China, if you're working for a local firm, the same experience might get you half of that all-in. Now, the lifestyle is just as good, if not better, once you account for where you stack up in the income percentiles, but lots of people just look at the gross income and don't take other things into account. So that scares off some well-qualified applicants from the private equity job market here.

Very cool insights. Many thanks for your time. Look forward to being in touch.


This interview has been edited and condensed for length and content.

Comments (2)

Mar 14, 2014

Obviously it's a small sample out of the population since I've only met like 5 people doing PE in China, but all of them (and all of them are loaded) told me if you are not loaded/coming from a well connected family, dont even think abt PE in china, there is no such thing as "working your way up" in Chinese PE funds.

Mar 14, 2014