Track 1: China: Optimism in adversity

 Is the valuation drop-off large enough to stimulate investment?

 Which sectors exhibit the most resilience or growth potential?
 How are heightened risk factors influencing investment decision-making?
 What can GPs do about the tougher exit environment?

Trustar capital – buyout shops focused on China

Ascendent capital – Mid cap, control/influence. China focused

Hopu investments – late stage buy out firms, asia and china focused

What catalyst is needed for this environment to get more positive

Trustar Capital

- Geopolitics. USD liquidity has been dropping from China. Need geopolitics to stablise
- Real estate. Govt internationally prop it up even though it was not good long term. Now they
are intentionally not helping. Now near the bottom. Real estate impacts China economic
growth

Fountainvest

- Regulation clarity. Good intentions, but introduced in a haste will make businesses
uncomfortable

Ascendent capital

- Looking for cheap things to buy now. China index is 50% of S&P
- Stability is also key. China is second largest. Don’t need to talk about 3, 4, 5, it is still the
second largest and one of the fastest growing economies. China is plugged everywhere, will
always be relevant
- If things are cheap, it’s a good environment

Hopu

- Macro environment. High interest rate environment is dampening investor sentiment

- Regulatory aspect – needs to have more clarity. Focus on quality over quantity
- Geopolitical aspect – US elections coming up will be a consideration and whether there’s
more potential headwinds to come

How does the current deal valuation look like, is it cheap enough?
Ascendent

- A lot of things are cheap, but need to understand will they continue to decline
- Buying at 6-8x EBITDA, a lot of safety margins
- Like boring things, a lot of things in the past too fancy. Internet, hi tech, hard to value
- Mid cap is harder to evaluate now. Are they cheap, are they stable?
- 5 years ago would have been hard to find anything that’s less than 10x EBITDA

Fountainvest

- Buyer is looking for more bargains at this point of time

- Sellers are looking to be more flexible because they are distressed, financially stretch, need
cash, now willing to be reasonable on valuation
- But others need time before they will admit the environment is different

Hopu

- Valuations are coming down on china assets

- Excited because more opportunities

Trustar

- From a technology perspective very clear and people will continue to build and to support
- Given China’s size, substantial market and a lot of use case and commercial value
- Most people think about US-China as a challenge, but can be an opportunity too

Are structured deals downrounds?

Trustar

- Every company and situation is different

- If good company then they can hold their valuations although granted valuations as a whole
has been coming down

Working more on buyouts (carveouts, divestments etc) or more on growth? Is buyouts becoming
more prevalent in this environment

Ascendent Capital

- More prevalent recently because of take private deals. Also because of generation shifts
- A lot more new economy, innovation happening. More opportunities for PE VC opportunities

Hopu

- Have always been doing buyouts

 - 3 conditions for buyouts: economic growth must slow down (if fast, then entrepreneurs will
want to drive, don’t need buyout shops), need leverage (very hard to make money if not),
need stock markets to crash (high multiple stock markets, no one will want to sell)
- Wont be surprise if peers pivot to buyout

If slowdown in IPOs to deal with buyout increase?

Ascendent Capital

- Buyouts generate best returns for their portfolio, esp small to mid cap
- If buyouts are manageable, if know the industry, management team is strong, not too big,
investors are willing to write few hundred million dollars, then its easy
- More willing sellers now because of dislocation
- Most of the MNCs who are good are not selling. Those who are selling are those that are not
doing well. Couldn’t find anything good, or those that are good are not selling cheap

Any adjustments in sectors?

Ascendent

- Focus a lot on companies that produce, focus a lot on domestic consumption. Not too fancy
stuff
- Ski is interesting because not a lot of Chinese goes to European countries to ski. They have a
Chinese company that focuses on domestic lower tier countries
- There is recovery in china, but the question is where is the recovery happening? There is
weakness happening yes but there is also recovery in other places

Fountainvest

- Consumer investors is about half of their investments

- China market is mature, but there are sub sectors of consumer that is still waves after waves
- Made money on wristwatch company because everyone wanted swiss wristwatch

Hopu

- 230m of people 45-54. These are the people who benefit from china economy performing
- They are not too old, have a lot of money. Health conscious now. Have hobbies. Willing to
spend
- Do a lot of business service as well. Facility management, pest control offices. Very small
cost but a lot of scale especially if you can use technology

Exits and liquidity generation. What are some of the things you are doing to generate liquidity

Trustar

- Have to think harder about exits because now the environment is bad
 - Have to be more creative
- If there is no opportunity for liquidity at portfolio level, what about at the asset level. Can
the company sell off real estate properties to provide distributions back to shareholders

Ascendent

- Need to demystify Chinese PE having little liquidity

- Buyouts: if you control the company, you can direct the company. If you have minority then
look at mandatory redemptions, dividends. But also training for the Chinese entrepreneurs
that its not putting the money in for 10 years and no money back, they need to understand
that you got to return cash flow back to shareholders

Fountainvest

- Liquidity options have become more broad over past 10 years

- Last 2 years were behind the curve when it comes to exits
- Started to see encouraging signs this year

Hopu

- China deals have two cash streams: one from the company (dividends, recaps), another is
sale

Is liquidity coming back to China?

- Don’t see it, but if it comes back too big too fast its not good
- Are international investors coming back to China? A lot of them are sitting on the sidelines
for a long time
- Long distance relationship is tough to work
- China is investable, but not all parts investable. How can the second largest economy be
uninvestable
- Don’t need too much positivity but as long as there is stability there is money to be made
- Chinese companies are very competitive, in downturn, it becomes even more competitive. 5
years later there will be Chinese companies everywhere.
- As PE investors, cannot control macro environment, but can target competitive PE
companies