David Rubenstein would like to double or triple the number of investment professionals he has working on private equity deals in China.
"I'm extremely bullish on China," the founder and co-CEO of The Carlyle Group said. "I think that China will be, in my lifetime, the greatest source of private equity wealth for investments around the world."
After time spent as a lawyer and as a domestic policy advisor in the Carter administration, Rubenstein started The Carlyle Group in 1987. Today the investment firm manages approximately $200 billion in assets. Rubenstein, who also is chairman of the Duke University Board of Trustees, spoke about the future for private equity in China during the Duke International Finance Forum at Duke Kunshan University, where he also serves on the advisory board.
"China is the greatest place outside the United States to invest because you've got the second largest economy in the world, growing at 7 percent a year. It's grown at 10 percent a year for 30 years. No country's ever done that," Rubenstein said. "You have a government that welcomes private equity, that encourages people to come from the outside to invest. You have an entrepreneurial spirit."
Rubenstein went on to say that according to United Nations statistics, one out of every 10 Chinese is an entrepreneur, the highest concentration in the world.
"You have highly educated workforce. You also have a low penetration rate of private equity, there's not that much competition," Rubenstein said.
Rubenstein said Carlyle was among the first companies to begin private equity work in China back in 1997. He believes now Carlyle is probably the single largest investor in private equity of any global firm in China. "We've invested about $5.9 billion in 80 transactions and we've made a great deal of money," Rubenstein said.
Rubenstein said the Chinese government welcomes private equity investment because they see it as helping Chinese companies become more efficient.
"So they don't view us as doing something that's hurting the Chinese economy, they view us as doing something that makes it better for the period of time that we're investing," he said, "and ultimately a Chinese company will own it."
Rubenstein shared several lessons from investing in China:
- Have local people on the ground. "We have about 30 investment professionals in China working for Carlyle, each is a native of China."
- In every deal, have a good local partner. "Trying to do these deals by yourself, you will not succeed."
- Understand what the government wants you to do. "Don't try to do something against what the government is interested in and make sure you understand the levels of government. There are many levels: The federal government, the provincial government, the Communist Party leadership — you need to make sure you know all of the powers-that-be and that you are not doing something inconsistent with their views."
- Invest in an industry that makes sense. "We tend to invest in industries that are going to benefit from the increased wealth in China, not from the export industry. We look for things that will serve China's growing middle class: Enhanced food supply, health care, financial services, things the Chinese will want as they get wealthier."
- Understand you will be selling to a Chinese entity. "We don't try to say we're going to buy something and sell it to some foreigner and ultimately it's going to be owned by some foreigner forever. It's strategic. After we fix a company and make it better, we sell it back to an entity that is Chinese."
In 1980 there was roughly $8 billion in the entire world in private equity, Rubenstein said. Today, there is over $3.5 trillion.
"The industry has changed more since 2007 than it did in the previous 40 years, with more transparency and better governance. Returns on investment are not as quite as high but investors are happy," Rubenstein said. "The industry has spread throughout the world. It's not considered an alternative investment as much anymore, it's becoming more of a mainstream investment."
Editor's note: This story was amended August 27, 2015 to correct the number of investment professionals Carlyle has working in China, as well as the amount of money and number of transactions in which Carlyle has invested in China.