term Investment for Private Equity Firms
Siegel notes that he is also concerned about China system of in which business is conducted more through elaborate networks of relationships than on merit. economic success, he points out. with Chinese connections can do a lot, but I cautious about the whole question of whether the contracts written would be upheld with the wider amount of certainty that they would in India.
That said, Siegel adds a final nike earnings twist that might steer investors toward China, at least in the near term relative valuations. Dow Jones Industrial Index broke through 10,000 in February, up from 3,300 in December 2002. The price to earning ratio for India stocks is 21, while Chinese stocks nike huarache ultra on the Hong Kong Exchange are selling for 15 times earnings. In private equity, firms invested $2.3 billion in India in 147 deals last year, up from $1.6 billion in 68 deals the prior year, according to Venture Intelligence India.
Rahul Bhasin, managing partner of Baring Private Equity Partners, believes that despite differences in the two countries, both will continue to benefit from globalization. has been a lot of hullabaloo about off shoring and outsourcing, but the bottom line is, it is a globalized world, he says. will work harder for less in markets like India and China, and you are going to find most production work moving to these countries. There will be a shift in consumption globally from what is the developed world into the underdeveloped world. And it will happen faster than it has ever happened before.
The debate over which country is the better venue for investment is less important than knowing how the strengths and weakness of each nation would impact a specific investment, according to Stephen Sammut, Senior Fellow and Lecturer in Wharton Entrepreneurial Programs and Health Care Systems. Sammut made his comments while moderating a panel discussion titled vs. India: The Smarter 5 Year Investment at the Wharton Private Equity Conference.
view of the two countries as being rivals in a war to procure more investment capital for either buyouts or venture capital is an entirely incorrect way of framing or charting what going on, Sammut pointed out. fact they represent extraordinarily different markets on many levels.
First, he said the nature of entrepreneurship in India is different than in China because large numbers of Indian entrepreneurs have been able to work abroad as expatriates in many roles. will be manifest in the kinds of businesses they develop, particularly in information technology, and the pace with which they going to be able to have technologies migrate from India. He also said India has an advantage in healthcare including biotech, pharmaceuticals and telemedicine, but he expects China to catch up rapidly.
Other panelists working in private equity in India and China laid out pluses and minuses in the two markets during the Wharton conference, which was titled Returns: Value Added Investing.
Mukund Krishnaswami, managing director of Krilacon Group, an investment firm based in New York and Philadelphia, agrees with Siegel about the current investment climate in India. term, I a very big bull on India. India is a country where they done so much wrong in the last 45 years. Yet despite all that there so much that is good going on that if they just get it right, the opportunities [will be] fabulous in 25 years, he said. the short term, I quite a bear. I think the risk premium just isn there in most assets to be spending a lot of money [in India] today.
Krishnaswami advised investors to follow the broader economy, not the trends that are hot today, including information technology or real estate. for derivative areas of economic growth and take a 12 to 25 year horizon. Those who do will be fairly compensated for the risk they taking.
Panelist James Hahn, CEO of Global Venture Network and managing partner of China Private Equity Partners with operations in Hong Kong, said an overflow of foreign capital could hurt private equity returns in China, but he does not see that happening until after the 2008 Olympics or the Shanghai World Expo in 2010. rule of law and accounting standards. GAAP rules. We are betting on the current quarterback. private equity is now generating mediocre performance mimicking money market returns. investors are happy to find a 5% return, he noted. In China, today, the average investment is $5 million for a 30% stake in a Chinese growth company grossing $10 million with net income of $3 million and a pre money valuation of $15 million, or 5 times net income. public companies in the same high growth sectors such as healthcare, media, and education are trading at price to earnings ratios of 25 times. Buying low and selling high has delivered a minimum return of 100% a year for a five year, $100 million size fund in China, said Hahn.
arbitrage has delivered extraordinary performance. We achieving that and everybody we know in China is achieving that, he said. just the way things are today until the markets become more efficient.
Xiaojun Li, principal at IDG Venture Investment, remarked that he is bullish about China over the long term because of its growing middle class and potential as a consumer market. He pointed out there are more Internet users and engineers in China than any other country, and that China also has a strong entrepreneurial culture. need to be patient, he said.
think the global private equity investor really has to dig deep to understand the motivation of the founder managers, said Freeman. strategy is find and choose companies that are willing to embrace global corporate governance and other buzzwords that will create more liquidity in their stocks.
Freeman said Singapore has set out to become for India and surrounding countries what Hong Kong has been to China. are other Asian investors clamoring to get involved in India, as well as the Japanese who are becoming increasingly interested.
During the World Economic Forum in Davos, India made an all out push to promote itself as a business friendly environment for investment. In a move that seemed timed to coincide with the forum, the government lifted limits on foreign direct investment. The most notable change was in the retail sector where outside firms selling a single brand, such as Nike, will be allowed to own a majority stake in Indian stores. The cabinet also decided to lift the limit on foreign direct investment for the development of airports, mining for diamonds and other precious stones, and power trading.
Freeman said in this environment local partnerships are crucial. really have to know who you are getting into business with. If the locals don have confidence in the local legal system, it crazy to think that foreigners will, he said. market expertise is critical. or Western European private equity experience in these markets.
Li noted that despite China reputation as a haven for intellectual property pirates, the country is now taking those complaints seriously. long term prediction is that intellectual property protection is going to get better, he said.
Both countries have recently signed onto the World Trade Organization Agreement on Trade Related Aspects of Intellectual Property Rights, or TRIPS accord, but Sammut said it is nike outlet wrentham too soon to tell how soon the emerging countries will comply. countries have had very rapid changes in the underlying policies and laws that make Western style transactions possible. Both have only recently embraced TRIPS, so the judicial infrastructure is going to have to evolve quickly. If the Western experience is a prologue, it going to take a decade or more for that to reach functional maturity.
Venkateshwaran Raja, India head of Deutsche Bank Real Estate Opportunities Group, said that until the Indian government began to liberalize financial rules, including limits on foreign investment