Smooth sailing in rough seas

May 4, 2020

Though he is the first Chinese player to make a mark in the French private equity industry, Cai Mingpo, the president of the Paris-based Cathay Capital Private Equity, says that to be successful it is important for companies to dive a little bit into the turbulent economic waters, but not get swept away by the current.

At a time when many cash-strapped European banks are forced to sell their PE investment and many funds are experiencing weak performances and difficulties in raising funds amid the bleak eurozone outlook, Cathay Capital is bucking the trend by tapping the active capital flow between China and Europe.

“You will find big waves and heavy winds if you stay on the sea surface. But if you dive a little below the stormy surface, you will find it is actually quite serene underneath and you’ll see clearly where the fish are,” Cai says.

From the initial 70 million euro ($94 million) in 2007 when it was set up, Cathay Capital has grown into a fund with 420 million euros worth of assets under management. It is also the manager of the 150 million euro Sino-French investment fund set up by China Development Bank and French bank Caisse des Depots in September 2012.

Cai says that it was the correct positioning of Cathay Capital as a cross-border fund between China and Europe that helped it weather the financial crisis.

The goal of Cathay Capital was clearly lined out when it was launched six year ago by Cai and his French partner Edouard Moinet, who saw huge business opportunities in bringing mature French companies to the booming Chinese market and helping fast-growing Chinese companies expand in Europe.

“Our goal is to be useful to both French and Chinese companies,” he says. “Private equity is the tool for us to realize it and to achieve something bigger than just financial gains,” he says. Being a cross-border fund, Cathay Capital has been able to enjoy strong wind at its back, taking advantage of the huge untapped potential of the complementary nature of the Chinese and French economy.

Both French and Chinese enterprises, after developing to a certain level, will face challenges while going abroad to gain wider reach beyond their home market, experts say.

The emerging Chinese market is attractive to French enterprises that are seeking growth elsewhere to offset the decline in the saturated home market. In 2011, France surpassed the United Kingdom to be the largest European investor in the Chinese market, accounting for 26 percent of the European transactions, according to a recent report by accounting firm PricewaterhouseCoopers.

In the meantime, a growing number of Chinese enterprises have come to France in hopes of tapping the advanced technology know-how and moving up the value chain for future competitiveness.

“This is where PE funds can play a role to meet the unsatisfied needs of enterprises. We help blend two different glasses of water and make them a better one,” Cai says.

A successful example is Cathay Capital’s investment in Shandong Sinder Technology Co Ltd, a Chinese animal healthcare firm in 2008. Cathay Capital helped the Chinese company gain technological expertise from French vaccine provider Virbac. This partnership also opened the Chinese market for the French company whose products were no longer in demand in Europe.

In another case, Cathay Capital invested in Chinese furniture manufacturer Guangzhou Ningji Industry Co Ltd and helped it set up a joint venture with its French partner Sogal Group that specializes in design, manufacturing and distribution of tailor-made furniture. Cathay Capital’s investment not only helped resolve the brand dispute between the two companies but also facilitated the joint venture to be successfully listed in the Chinese A-share market in Shenzhen.

Cai, an entrepreneur-turned PE investor, says he has high hopes in the small and medium-sized enterprises from France and China, which he believes could be the cure for the current economic crisis.

Before venturing into the PE industry, Cai owned a stone-trading company in France. His entrepreneurial experience in the stone business not only helped him earn his first barrel of gold but more importantly it made him recognize the crucial role of SMEs in creating growth and employment.

“The fundamentals of the European economy are not as bad as people imagine it to be. The SMEs are the most dynamic force in the economy and they can be the cure for the ongoing economic crisis,” he says.

“Therefore, the companies we are looking for are those that have high growth potential, broad international vision and a powerful and effective management team,” Cai says.

Cathay Capital’s confidence in the SMEs can be found in its role as the manager of the 150 million euro Sino-French fund that aims to develop global SMEs from both countries.

The Sino-French fund, the first of its kind, will be invested equally between French and Chinese businesses with a turnover of between 10 and 200 million euros, according to Cathay Capital.

Both Cai and his French partner Moinet believe that the launch of the fund is a reflection of China playing a rising role as a major capital exporter as well as an attractive investment destination.

“China is playing a bigger role in the world. I have to face a lot of investment decisions to go to China and to bring support to my portfolio companies in China,” Moinet says.

It was also why Moinet, who has 18 years of private equity experience and has taken part in more than 45 transactions in France, decided to team up with Cai to launch a cross-border fund that could utilize their resources and networks in both China and France.

“When making investment decisions, we tend to focus on the quality of the management team and invest in portfolio companies with high entry barriers and tangible or intangible assets which can protect them from financial difficulties,” Moinet says.

Talking about Cathay Capital’s future plan, Cai says he is planning to expand the scale of the fund and the management team to encourage more and larger French and Chinese enterprises to achieve their globalization ambitions.

“For a PE fund, it is crucial to maintain the down-to-earth style and be aware of its own weakness,” he says. “We need to know our limits but also see the limitless possibilities.”

By Li Xiang (China Daily)