Rising Star: Wong Races to Third Fund After Carlyle Apprenticeship

“At a young age, she is already an old hand, and a good one at that,” U.S. venture capital veteran Robert Grady told Private Equity Analyst when describing his former Carlyle Group protégé Elaine Wong, now a founder and partner at HAO Capital in China.

Indeed, at only 36, Ms. Wong’s Beijing-based firm is already gearing up for a third fund that could total around $500 million, while she sits on the boards of Chinese companies, including home furnishings company Ju Tai Long.

Originally a scientist, with a chemical engineering degree from the Massachusetts Institute of Technology, Ms. Wong decided to embark on a career in investment after realizing laboratory work wasn’t her forte, encouraged by a friend who worked at Carlyle.

In 1999, she accepted a job at Carlyle in the U.S., admitting that at that time she knew little about the industry. She found her feet quickly: One early deal saw her involved in multiple investments in Blackboard Inc., a developer of e-learning software for universities, for Carlyle Venture Partners. In 2011, Blackboard, which had since listed on Nasdaq, was bought out by Providence Equity Partners for $1.64 billion. “Elaine had the background and intellectual capacity to understand the technology,” said Mr. Grady.

In 2001, Ms. Wong decided to pursue an M.B.A from Stanford University that would help hone her “softer” skills, she said. One particular class that has proved useful to this day, she explained, was interpersonal dynamics, also known as “touchy feely,” which has come in useful when working with entrepreneurs.

On graduating, she returned to Carlyle, but this time for its Asia operations. “The early 2000s were a good time for Western VCs in China – the government was welcoming of the know-how, the investing expertise and the technology domain knowledge being used to assist China’s growth,” said Mr. Grady. It did, however, take more leg work when it came to deal sourcing as the market was immature, said Ms. Wong.

After several years with Carlyle, which saw the firm invest in Chinese companies such as C-Trip, an online travel agency that now trades publicly, Ms. Wong decided to set up on her own firm, founding HAO Capital in 2006.

She said that persuading some limited partners to back a China-only fund was a challenge, as many preferred to hedge their investments via a pan-Asian vehicle. In 2006, “people were intrigued by China, but not everyone was ready to pull that trigger” and invest in a solely China-focused vehicle, said Ms. Wong. Fast forward six years, and the firm now manages around $500 million across two funds, according to HAO Capital’s website. Ms. Wong said the firm targets a five-times return on its investments.

HAO invests in consumer, health care and light industrial companies, typically targeting a 10% to 25% shareholding, with deal size ranging from 80 million yuan ($13 million) to 300 million yuan. It has established alliances with other China-based businesses such as home-grown private equity firm Harlyn Capital. In July of last year, Hao teamed up with Guangdong-based consumer electronics company TCL Corp. to form a joint venture that will invest in Chinese diagnostic imaging companies.

HAO’s portfolio includes LP Amina, which provides environmental and energy technology services for electric utility plants, and mobile payment platform company HiSunPay. It has seen exits from the likes of China Cord Blood Corp, a health-care company that listed on the New York Stock Exchange in 2009, and waste management business ZhongDe Waste Technology AG, which went public on the Frankfurt exchange in 2007.

Dow Jones

Full Steam Ahead Toward A Cleaner, More Efficient China

In this exclusive interview with China Daily, Will Latta, founder of LP Amina, one of HAO Capital’s investments in environmental and efficiency, talked about its unique technology and business model and the value adds that HAO brings to the company.

Cutting-edge technologies can help clean-up country’s coal-tarnished environment.

Just as pandas are attracted to bamboo, companies and individuals who are experts in coal-based clean technologies are being drawn to China in increasing numbers, by the lure of an industry estimated to be worth $25 billion globally.

That’s why William Latta, a former senior executive with Alstom Power, the world leader in conventional power generation equipment, came to the country five years ago.

Latta is the founder of the Beijing-based environmental engineering company LP Amina, which says it has developed technology that can vastly reduce the amount of pollution produced by burning coal.

According to the latest industry figures, about 70 percent of the country’s electricity supply comes from thermal power plants, or plants fueled by coal.

Latta’s company specializes in delivering complete cleaning solutions for power plants – particularly thermal power plants – while also making them more efficient.

Its key technology is a revolutionary system of getting rid of poisonous nitrous oxide gas. It eliminates the pollutant when coal is burning in a boiler, not only reducing the nitrous oxide produced by up to 65 percent, but also improving efficiency in the boiler’s energy output.

Latta said that as China’s energy industry continues to burn coal, LP Amina’s De-NOx technology is poised to clean up, literally and figuratively, as the government continues to target cleaner and more efficient ways of cutting emissions.

The Ministry of Environmental Protection announced in September last year that starting from January, all Chinese power plants should adopt measures to meet new national standards for nitrogen oxide emissions in two years.

“Coal is the most widely used energy source in the world and every country needs clean-coal technology.

“So when you develop a technology that is better than any others, it’s not hard for you to find customers,” he said.

Since 2009, when the De-NOx solution won its first client, Yixing-Union Cogeneration, LP Amina has completed 20 projects in China as power plants look for ways to control their gas emissions.

There are only two companies in China, according to Latta, that own such proven in-furnace technology: LP Amina and Yantai Longyuan Power Technology Co, a State-owned enterprise listed on Shenzhen’s new growth market, ChiNext.

China has the world’s largest number of coal-fired power plants, with more than 1,500 large and 4,500 small units in operation.

According to a study by HAO Capital, the Beijing-based private equity firm and an investor in LP Amina, 99 percent of those have yet to install a solution for their nitrous oxide emissions.

Based on conventional SCR/SNCR technology – the method of lessening nitrogen oxide emissions in conventional power plants that burn biomass, waste and coal – LP Amina’s systems are particularly tailored to provide solutions for the unique challenges facing the Chinese power industry, such as its use of high ash, and low volatile coals, Latta said.

LP Amina now has R&D engineers working in the United States and China, and Latta says there is great willingness in China for new technologies to be accepted by the coal and energy industries.

“We cooperate with many Chinese companies on new technologies, and we have also been able to sell our products and knowledge all over the world,” he said, adding that the average price of what would be considered a large-scale contract is $2 million.

In China, LP Amina has completed projects in various locations including Yixin, Jiangsu province; Xingtai, Hebei province; Fengtai, Anhui province; Guangzhou, Guangdong province; and in Beijing.

It has also completed two projects in the US, and is looking to expand into Mexico, South Korea, and Columbia.

Latta uses the example of Yixing-Union Cogeneration, a coal-fired power station in Yixing city, Jiangsu province, as being typical of what can be achieved, after cutting nitrous oxide emissions there by 50 percent.

Hu Zhijie, deputy general manager at the Yixing-Union plant said: “We had a great experience working with LP Amina in 2009 – we were amazed by the passion and technical expertise they put into this project.

“In the years since, we have developed a trusted relationship and that’s one of the reasons we have just awarded it three more contracts.”

Latta said in the short term, the company plans to set up three or four more R&D centers to further develop its technology.

The company is also working with the global company Bayer Technology Services to develop ways of better-using coal-based chemical resources.

LP Amina raised about $10 million from China-focused HAO Capital in 2010, and previously received money from Qiming Venture Partners, another local venture capital investment company.

Elaine Wong, HAO’s founding partner, said that it only invests in companies that are looking to expand.

She first met Latta in a Beijing restaurant in 2007, when he had just left Alstom and was planning to set up LP Amina.

“We were impressed by his technology background and his determination to make China cleaner,” Wong said.

“Of all De-NOx technologies available, we view his in-furnace solution as the best available to operate right in the heart of a boiler.”

Wong said HAO Capital’s support of LP Amina includes not only direct financial investment, but also access to its business contacts and other resources, which will help it expand.

She said some large international companies hesitated to get involved in LP Amina because they were wary of the technology; but she very quickly understood the massive potential.

 “Coal is still widely used in China and around the world,” she said, and HAO Capital will continue to support LP Amina in its work.

Ellen Carberry, co-founder and managing director of The China Greentech Initiative – a company focusing on accelerating the commercial success of enterprises in the clean technology sector – said LP Amina has exceptional potential.

She added that she considers it lucky, too, in that most venture capital and private equity companies prefer opportunities with companies that can earn them money quickly, normally within five to seven years.

Latta pointed out that according to the International Energy Agency, one-third of the world\’s electricity is still be derived from coal, and that its use is expected to continue rising for the next 20 years.

With over 50,000 coal-fired power stations worldwide, the demand for engineering expertise in emission reduction and operational optimization looks likely to remain extremely high for many years to come – and not just in China.

Asian Firms Look Beyond Stock Sales to Raise Funds

Simon Eckersley, CEO and Co-founder of HAO Capital, talks to CNBC about seeing Chinese companies increasingly turning to private equity for capital when IPO markets are sluggish.

A drought in the IPO market has more Asian firms looking into alternative ways to raise capital, with many tapping private equity and debt markets.

Global investment firm Piper Jaffray says there’s been a 25 percent increase in demand for both private equity and bank loans from regional clients in past two months, as turmoil ripped through global stock markets.

“Some companies that do need the capital… are clearly trying to get more comfortable with gearing some more bank debt; and, when necessary, if they still need more capital, they will turn towards the private equity and venture capital community,” said Hong Kong-based J. West Riggs, who is Managing Director and Head of Asia Equity Capital Markets at the firm.

Asia’s struggling IPO market has resulted in only 25 listings in the first six months of this year on the main board of the Hong Kong Stock Exchange, compared to 42 deals for the same period in 2011. Only six of this year’s listings were greater than $100 million, pointing shaky investor interest in what has been considered the world’s biggest market for IPOs in two of the past three years.

As a result, China-focused private equity firm HAO Capital is seeing more companies that haven’t been able to raise funds in the stock market this year.

“We are coming across more companies that have tried to go public and raise capital in the public markets and haven’t been successful like a delayed IPO or they filed in the U.S. and it didn’t happen and now they are looking at a private round of financing,” said CEO and Co-Founder Simon Eckersley.

While there are more opportunities for private equity investors, Eckersley notes that the current market conditions have made it difficult to exit from the investments.

For Singapore-based UOB Venture Management, the investment horizon for their private equity funds is now longer as listings get delayed.

“Investee companies need funding for a longer period of time, before they eventually do an IPO,” the firm said.

“Overseas exits are particularly difficult at the moment,” Eckersley said. “I think the China market is still open for business, but IPOs outside China are more difficult at the moment.”

Chang Tou Chen, Managing Director and Head of Global Banking of South East Asia at HSBC, adds that while private equity firms are becoming more relevant in Asia, the control factor over companies still limits their reach in the region.

“Many companies in Asia are either state owned or family owned, and families don’t like to lose control of companies to private equity,” Chang said.

“If it [IPOs] doesn’t pick up then the private equity alternative will continue to increase in demand and then the other alternative will be mergers and acquisitions,” Riggs said. “So there will be some companies that may be forced to look for strategic buyers.”

HAO Capital Formed Joint Venture “TCL Healthcare” with TCL Group

China focused private equity firm HAO Capital announced the formation of a joint venture “TCL Healthcare” with TCL Group. HAO Capital made the investment via its healthcare investment platform company SKR.

TCL Healthcare, with the combined resources from HAO Capital, SKR and TCL Group, is positioned to become a leader in China’s diagnostic imaging market, providing a full suite of high quality products and services including X-ray, Ultrasound, DSA, CT and MRI, etc.

China has already become world’s 4th largest medical equipment market with greater than RMB 60bn of sales, among which, more than 1/3 is diagnostic imaging equipment. The market is expected to maintain a 20% growth rate over the next few years, driven by urbanization, aging population, more social healthcare coverage and increasing awareness in healthcare. Multinational companies accounted for more than 75% of the diagnostic imaging market and the percentage is even higher in the high-end segment. Currently, no Chinese medical equipment company has a full product line in diagnostic imaging equipment. Meanwhile, Chinese government is supporting the development of a few Chinese companies that can become capable alternatives to foreign imported diagnostic imaging equipment ones.

TCL Group is a leading Chinese consumer electronics company in China. TCL Group is leveraging its brand, manufacturing and technology platforms, marketing capabilities and management resources to build a leading Chinese medical equipment company. TCL’s strategy is similar to GE, Philips, Siemens and Toshiba, the top four medical equipment companies globally, each of which expanded from consumer electronics into medical equipment and technology as one of their core strategic business units over the past decades.

“We are optimistic about the investment opportunities in China’s medical equipment market, especially imaging diagnostics equipment where there’s a clear and high growth market for quality, locally developed and manufactured equipment,” said Elaine Wong, Partner and co-founder of HAO Capital, “with the alliance of HAO Capital, SKR, TCL and our respective management, expertise, and resources, we are confident that the company will become the industry leader in China.”

HAO Capital made the investment via its healthcare investment platform company SKR, which HAO Capital invested in 2009. SKR is established by Chih Chen, a 30 year veteran of the healthcare industry and ex-President of GE healthcare China. By combining HAO Capital’s strengths in project selection, execution, strategy and capital planning and SKR team’s domain expertise, operating and management experiences, HAO Capital acquires or invests in medical technology and service companies in China to help to improve products, performance and profitability, meeting the need for quality and affordable healthcare.

About HAO Capital

HAO Capital is a China focused Private Equity firm based in Beijing and Hong Kong, providing growth capital to Chinese companies. Founded in 2005 by three seasoned investment professionals, the firm currently manages total assets of USD500mn across two funds, with a bias for investments in Consumer, Healthcare and Light Industrial, including Clean/Greentech.

www.haocapital.net

About TCL Healthcare

TCL Healthcare, formerly known as “TCL Medical Systems”, was established in 2009 October, specializing in R & D, production and sales of medical imaging equipment. TCL Healthcare was selected in 2010 as core enterprise member of Beijing City pharmaceutical industry leaping development project (also called “G20” project), and undertakes a number of key scientific research projects of the Beijing Municipal Science and Technology Commission and the State Ministry of science and technology. TCL Healthcare’s business spreads across mainland China and Southeast Asia. Mr. Chih Chen, former President of GE Healthcare China and current President of SKR, serves as Chairman of TCL Healthcare, and Mr. Hu Hai, General Manager of the former “TCL Medical System” as CEO.

med.tcl.com

About TCL Group

Founded in 1981, TCL is one of the largest consumer electronics enterprises in China with a global presence. TCL Corporation has three listed companies: TCL Corporation (SZ.000100), TCL Multimedia (HK.1070) and TCL Communication (HK.2618). Currently, TCL Corporation has set up four business units – TCL Multimedia Holdings, TCL Communication Holdings, China Star Optoelectronics Technology and TCL Home Appliances Group, as well as six business groups – System Technology Unit, Techne Group, Emerging Business Group, Investment Group, Highly Information Industry and Real Estate Group. In 2011, the brand value of TCL had exceeded RMB 50.118 billion, continuing to hold the No. 1 TV brand position in China today.

www.tcl.com

LP Amina: Emphasis on Collaboration

China’s small and medium-sized enterprises (SMEs) are at the forefront of the country’s efforts to move away from a so-called copycat economy and toward exporting its own innovations, and there’s no shortage of foreign interest.

US-based energy efficiency technology firm LP Amina revealed at a conference on SMEs held last week that it will collaborate with a Chinese partner later this year to help a thermal power plant in the US cut costs and emissions, so that it can be viable for another 20 years.

Global Times

View the full story here.

HAO Capital: Helping Chinese Companies Grow

Since its establishment in 2005, HAO Capital has been focusing on consumer, healthcare and industrial investments, such as SKR, China Cord Blood, Buchang Pharma, Ju Tai Long and LP Amina. In an exclusive interview with PE Daily, Elaine Wong, Partner and Co-founder of HAO Capital talked about HAO Capital’s vision to help Chinese companies grow, its unique investment thesis and how to become the trusted partner of entrepreneurs.

Though trying to stay a low profile in the past, HAO Capital is quite a well-recognized brand in the investment world and a trusted partner to entrepreneurs. Since its establishment in 2005, HAO Capital has been focusing on consumer, healthcare and industrial, with representative investments in SKR, China Cord Blood, Buchang Pharma, Ju Tai Long and LP Amina. In the recent exclusive interview with PE Daily, Elaine Wong, Partner and Co-founder of HAO Capital talked about HAO Capital’s vision to help Chinese companies grow and its unique investment thesis and story to become trusted partner of the entrepreneurs.

View the whole news in Chinese

Ju Tai Long: The Leading Home Furnishing Business

In a conversation with China’s leading business newspaper, the founder of Ju Tai Long, China’s leading integrated home furnishing company, shared his view of the company’s differentiated value proposition, robust business model and compelling competitive advantage.

“We analyzed the original operation model and piloted in a few new stores”, said Elaine Wong, Co-founder and Partner of HAO Capital, “ then we advised Ju Tai Long to open directly owned stores to improve efficiency, brand control and profitability”. Ju Tai Long is a representative investment of HAO Capital in the consumer goods and service sector in China.

21st Century Business Herald

Read the full text of the article in Chinese here.

Pressure in Private Equity

Elaine Wong, Founder and Partner of HAO Capital, was quoted in the Wall Street Journal story on the limitations of IPO exits for PE/VC in China. “Statistically speaking, given the limited number of companies that can go public each year, there are more companies backed by private equity and venture capital than there are IPO opportunities.”

Three of China’s biggest private-equity funds have agreed to buy control of a company from another fund, a rare move that underscores a mismatch between deal money and potential targets in the world’s largest growth market, as well as limited ways for funds to exit investments.

CDH Capital, Citic Private Equity and New Horizon Capital have agreed to buy MBK Partners’ more than 50% stake in the parent company of Singapore-listed LuyePharma Group Ltd., said a person familiar with the deal. The parent firm, Luye Pharmaceutical Investment Co., holds 77% of LuyePharma.

Details were unavailable, but the person said the stake sold at a premium to its market value. Shares of LuyePharma closed Thursday at 94 Singapore cents (75 U.S. cents), valuing the 50% stake at US$140 million.

An influx of new money seeking opportunities in China’s heady growth market is heightening competition for deals, spurring cash-flush funds to look for different opportunities. According to data from Zero2IPO Research, a Beijing-based firm that tracks China’s private-equity industry, private-equity and venture-capital funds in China raised almost $67.1 billion last year, 73% more than the $38.8 billion raised in 2010. Only $18.9 billion was raised in 2009. In 2011, funds invested $40.6 billion in deals in China, up from $15.8 billion in 2010.

“There are tons of funds that are struggling to deploy their funds wisely,” said Ludvig Nilsson, managing director of Jade Invest, an advisory firm focused on private equity.

Private-equity and venture-capital funds invested in 2,200 deals last year, almost double the 1,180 struck in 2010, according to Zero2IPO. There were only 594 in 2009.

What makes the LuyePharma deal unusual in China is the transfer of a stake from private equity to private equity, and underscores the difficulty of exiting deals. Private-equity funds in China typically prefer to go through initial public offerings. Such deals have been lucrative, with TPG’s investment in Shenzhen Development Bank Co. and Carlyle Group LP’s stake in China Pacific Insurance (Group) Co. notably earning big returns.

But the IPO market could become clogged with private-equity-backed companies. The first wave of funds to set up in China is nearing the end of its cycle, and the funds need to return capital to their investors.

Unlike in the U.S., where companies can publicly list shares if they fulfill criteria set by the exchanges, in China the securities regulator decides who can launch an IPO and when, resulting in long waits.

Last year, 171 Chinese companies backed by private equity and venture capital issued IPOs globally, compared with 221 in 2010, according to Zero2IPO.

“Statistically speaking, given the limited number of companies that can go public each year, there are more companies backed by private equity and venture capital than there are IPO opportunities,” said Elaine Wong, founder and partner of HAO Capital, a China-focused private-equity firm.

That will result in more funds either looking to sell to another private-equity fund or to a company. “We’re seeing [funds] who want to sell an asset because they haven’t been able to exit how they envisioned,” said Mr. Nilsson. “There will be more of these in the next two years.”