United States — Raising around US$1.7B, Morgan Stanley continues to act as a powerhouse for foreign direct investment in China private equity. Morgan Stanley’s timing is not accidental. It sees China’s growth potential as the best in a decade.


China Gross Domestic Product 2012

However large Morgan Stanley’s fund may seem, it comes with no surprise that it faces stiff competition in the marketplace. TPG recently raised US$3.3 Billion for its sixth Asia fund, Affinity Equity Partners raised US$3.8 Billion, CVC Capital Partners closed a US$3.5 Billion round and KKR raised US$6 Billion last year for the largest Asia fund ever created.

According to Finance Asia, Morgan Stanley hopes to repeat its success, this time with an additional US$200 Million in its Asia fund, by making investments comparable to its 8X ROI from its investment in Sihuan Pharmaceutical and its 14X ROI from its investment in Ping An Insurance.

In an interview with Finance Asia, Chin Chou, Morgan Stanley Private Equity Asia’s CEO said, “In the 15 years I have been in China private equity there has been no shortage of wealth chasing deals: you have to differentiate yourself.”



China Private Equity: Better Now Than 10 Years Ago?

Investors in the fund, referred to as the Morgan Stanley Private Equity Asia IV, are considered limited partners and include US state pension plans, sovereign wealth funds, financial institutions, funds of funds, endowments, and high net-worth individuals as well as Morgan Stanley and the investment team.

Some deals started with the fund but not finished include the purchase of South Korea’s Hanwha L&C and Sino Gas International and Noah Education, both in China respectively. Two small investments have already been completed into South Korea’s Ssangyong C&B Monalisa and India’s Janalakshmi Financial Services.

According to an interview with Chou on Finance Asia, Chou believes that China entry prices over the last two years have been the most attractive they’ve seen since 2002 to 2004.

Morgan Stanley is also buying businesses from individuals – such as its acquisition of a stake in restaurant chain Nolboo from its founder. It is also looking at opportunistic deals where foreigners are selling businesses.

But while the large, multinational investment firms are going to China… you might be better off elsewhere. Frontier markets such as Vietnam offer faster growth, less bureaucracy, and undiscovered opportunities.



About Lee Decker

Lee Decker is a serial entrepreneur who is close to the Silicon Valley start-up scene and is the founder of several successful companies. He lives in California and is InvestAsian's CTO and Start-Up Analyst.
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