UVA Darden School of Business Shanghai Investing Summit Explores Global Growth and Opportunity in China

“As Charles Dickens said, it was the winter of despair and now it is the spring of hope,” said Yifei Li, China chair for the alternative investment provider Man Group, at the inaugural University of Virginia Darden School of Business Shanghai Investing Summit. The summit was presented by the Darden Center for Asset Management and the Darden Center for Global Initiatives and sponsored by CFA Institute China, Virginia Economic Development Partnership and Shanghai United Media Group.

Li ― who previously held leadership roles at MTV Greater China, MTV Networks Asia and Viacom ― participated in a keynote discussion with Darden Dean Robert F. Bruner, which set the stage for the 9 May event in Shanghai, China. The summit occurred at a pivotal moment in economic history, as the buzz intensifies that the Chinese economy is likely to surpass the U.S. economy sometime in 2014 ― if it has not already.

Li spoke of the spectacular transformation of China over the past three plus decades and the country’s dynamic, evolving investing environment.

The panels that followed ― on hedge funds and alternatives, breakthrough investing opportunities and perspectives of large institutional investors ― echoed the optimism for China, a nation of 1.35 billion people, as a core market for growth.

Keynote speaker Liang Xinjun, vice chair and CEO of Fosun Group, predicted that the next 10 years for China will spur a transition from quantity to quality as the middle class grows, the demand for consumer and luxury goods rises, and the mobile internet booms.

A NASCENT INDUSTRY

“China is entering the era of hedge fund industry development,” said Li. Institutional investors are diversifying, family offices and foundations are emerging, and regulations are relaxing ― but still highly complex.

“Before, there were only three organizations that could invest offshore,” she said. Now, many organizations, including insurance companies, state-owned enterprises and family enterprises, are seizing opportunities ― onshore and offshore. Membership in the Asset Management Association of China has surged.

“The number of firms emerging in China’s alternatives industry is truly impressive,” said John G. Macfarlane III, a 1979 graduate of the Darden School and founding partner and chair of Vinci Zafferano Capital, who moderated a discussion on hedge funds and alternatives. “China’s extensive resources in human capital ― properly managed ― offer tremendous opportunity.”

To find that opportunity, Hua Fan, head of fixed income and absolute return investment department at China Investment Corporation, underscored the importance of research in the search for good value ― no matter the industry or region. “The challenge is to balance global perspective with local expertise,” she said.
Patrik Edsparr, CIO and co-founder of Tor Investment Management, also urged attention to detail. “There are compelling investment opportunities that have scarcity in capital,” he said, “but there are also a lot of fads.”

As Chinese investors increasingly look to invest overseas, Fanglu Wang, senior managing director of CITIC Capital, noted: “Chinese overseas investment has largely been viewed with skepticism and with some resistance.”

Wang said that Chinese firms must work to form long-term relationships with foreign investors and to create international consortiums to align their interests and enter markets as a group.

BUILDING THE CHINESE BRAND

Chinese foreign direct investment in the U.S. just surpassed U.S. foreign direct investment in China, said Jerry Peng, CEO of Four Seas Capital Management and a 2003 Darden graduate and a trustee of the Darden School Foundation, who moderated the panel on breakthrough investing opportunities.

As an example, panelist Jim Cheng, principal of New Richmond Ventures, former secretary of commerce and trade for the Commonwealth of Virginia, a 1987 graduate of Darden and a trustee of the Darden School Foundation, cited Shuanghui International Holdings’ recent multi-billion dollar acquisition of Smithfield Foods, which is the largest producer of pork products in the United States. The deal was the largest acquisition of a U.S. firm by a Chinese company.

“Americans tend to see China as a ‘Made in China’ logo,” said Cheng. “It will help the public perception and the investing perception when more Chinese brands establish themselves in America. Branding is so important for the image of a country.”

Qian Jiannong, president of tourism and commercial group and senior assistant president of Fosun Group, also highlighted that the momentum in China provides a big investment opportunity for European and U.S. companies.

Understanding the complexity and uniqueness of the Chinese market is key, said Qing Shan Liu, CEO of Manulife TEDA Fund Management Company. “When Western investors look at China, they use Western models to analyze the Chinese economy. That might not be the right approach,” he said.

Shan Liu expressed his confidence in the leadership of the Chinese government, building on earlier statements by Li, who emphasized the depth of talent of the people working in the government.

“The Chinese government is the richest government, and the land belongs to the government,” said Shan Liu. “When Western countries have crises, the governments don’t have the reserves to solve them. In China, we do.”

OTHER POCKETS OF PERFORMANCE

Though most discussion centered on China as the core market for growth, the panel led by Peter Rodriguez, Darden’s senior associate dean for degree programs, looked at other opportunities in the world.

Ichiro Suzuki, senior portfolio manager of Nomura Asset Management and a 1984 Darden graduate, who is based in Tokyo, expressed confidence in equities of well-managed firms and advised that if investors are willing to manage money for five years, opportunities abound ― even in the smaller markets.

Peter Chen, head of business development for Asia Pacific, CPPIB Asia Inc. added: “We always look for a market that’s large and deep enough to protect itself from systemic shocks.” Chen listed China, India, Australia, Japan, Korea and Southeast Asia as potential pockets of performance.

SHARED CONCERNS

Regardless of their investing preferences, the speakers and panelists at the Shanghai Investing Summit shared similar concerns. In Beijing, air pollution is the principal worry.

On the global stage, political instability and crises topped the list.

“It’s the unknown unknowns,” said Wang. “What keeps me up at night is how much we really know about emerging markets. What don’t we know and what could go wrong?”
The second annual Darden Shanghai Investing Summit will take place in Shanghai, China, in May 2015.