Still time to Invest in China?

Posted in August 1, 2010 ¬ 10:49 amh.jeff3,395 Comments »

As some of the world’s prominent fund managers have turned increasingly bearish about investment prospects in China, Guy Hands at Terra Firma, during his latest trip to Beijing, calls for the world’s young people to “Go East.

But the optimism from the chairman and founder of Terra Firma Capital Partners Ltd., one of the largest private equity funds in Europe, may have arrived late. Many believe the golden period for investment in China is over.

Indeed, Hands’ statement that Terra Firma has started looking for Chinese partners for some businesses may strike some as a tad anachronistic.

“We feel very strongly that the economic future of the world for the next 20 to 50 years is going to be dominated by China,” he told a press briefing in Beijing, adding that the confidence the West had a year ago about a quick recovery “is not there today”.

Kynikos Associates founder Jim Chanos and British hedge fund manager Hugh Hendry are two well-known hedge fund managers who have decided to short China. Both believe that China’s credit excesses have led to bubbles that will burst.

Even Hands acknowledged that the subject of his latest visit to China has been related to “more where I came from, than where I arrived”. Indeed, his view about Europe, and China, may not have shifted so much, had his fund not put a severe dent in its track record by buying EMI Group Ltd..

Terra Firma in 2007 bought EMI for 2.4 billion pounds — around $4.8 billion at the time — in a deal largely financed by loans from Citigroup Inc. The deal soured quickly after its completion as the financial crisis amplified the already significant declines in the recorded music market.

Terra Firma closed that deal in late July or early August of 2007, around the same time that a couple of Bear Stearns hedge funds ran into trouble in the mortgage markets.

“We were wrong by two weeks,” he said in September last year. If Terra Firma had not invested, it would still have 90% of its fund and “would look like geniuses”, Hands said at the time.

“The world has become more difficult to invest in over the last 10 years”, he said. To be successful over the next 20 to 30 years, one would need to think more globally, he said.

Hands didn’t elaborate on what has attracted him most about China. But he indicated that U.K. Foreign Secretary William Hague, who was his best man, shares his optimism, pointing out that Hague visited Beijing as one of his first stops after he took the position.

China Real Time


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