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.

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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.”

In an interview with China Economic Times, Simon Eckersley, Founder and CEO of HAO Capital, a China focused Private Equity firm, said he remained confident in investment opportunities in China. “Despite a sluggish economic recovery worldwide, we have faith in China. We are investors who partner with entrepreneurs to build their companies into leaders in their markets.”

China Economic Times: Tell me something about HAO Capital.

Simon Eckersley: 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, we currently manage total assets of USD 500mn across two funds.

We are biased for investments in Consumer, Healthcare and Light Industrial, including Clean/Greentech. Our targeting investments vary from RMB 80mn to RMB 300mn with target ownership ranging from 10-25%.

Our LP’s include institutional investors and high net worth individuals.

China Economic Times: What are HAO Capital’s target industries?

Simon Eckersley: We have invested in nearly 20 companies, five of which had already listed overseas. Our portfolio includes Ju Tai Long – a leading furniture retailer, Buchang Pharma, SKR – a medical devices and services platform, LP Amina – an environmental service company for the power industry, etc.

China Economic Times: From your perspective, which industries will become HAO Capital’s investment target in the future?

Simon Eckersley: HAO Capital will be more focused on Consumer, Healthcare, Greentech, energy saving and environmental protection industry in the future.

China Economic Times: Why do you attach great importance to these segmented markets?

Simon Eckersley: We clearly see some economic and social driving forces emerging in China, such as growth of domestic consumption, enhancement of consumers’ brand awareness, the growth in demand for products’ quality and safety, increasing demand from lower tier cities, requirement for sustainable development, aging population and improvement in social welfare and security, etc.

China Economic Times: Does HAO Capital have any specific investment plans in the Chinese market in the near future?

Simon Eckersley: Despite sluggish economy recovery worldwide, we have faith in China.  We are investors who partner with entrepreneurs to build their companies into leaders in their markets. We work with entrepreneurs who have a passion for addressing the challenges of growing their company and taking advantage of growth opportunities. Our focus is on companies that have an interest in creating competitive advantage through superior products, services, technology, management and/or access to unique resources.

Wenzhou, the manufacturing center of China, faces shutdowns as private moneylenders demand loans be repaid before Chinese New Year. Simon Eckersley, founder and CEO of HAO Capital, a private equity firm with offices in Beijing and Hong Kong, says, however, it is wrong to see Wenzhou’s problems as being unique.

He cites the problems that Western SMEs currently have in getting loans from European and American banks still trying to restore their balance sheets in the aftermath of the economic crisis.

“I don’t think it is a reflection of a broader problem of the Chinese economy because you also have it in Japan and in the UK,” he says.

He says if businesses cannot demonstrate their competitiveness in any market at present, they are going to find it difficult to get money.

“This is the case in every country and every region. China’s growth is maintaining its momentum, and the credit crisis in one region cannot reflect the whole picture.”

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