So you’re going to China.
If it’s for a sub-$1 billion foundation or mammoth public pension, China matters. Which means most asset owners, sooner or later, ship off for a couple of weeks and an impossible mandate: Meet managers, vet potential partners, conduct due diligence, assess what’s really going on economically, and create a China policy. Throw in jet lag, a language barrier, an exploding inbox around 2 am, and a family that wants proof of life occasionally—then mix with liberal late-night business boozing. You’ve got yourself an asset owner in China.
(OK, you’ve got yourself some asset owners in China. To the Mandarin speakers bristling out there: You are right. Asset owners come in all flavors, not just Anglophone Western.)
For the rest of you, here’s some wisdom to get you started.
Art by Josh Cochran
1. Two. Weeks.
If 14 sleeps feel like an awfully long time to spend on one country and a special administrative region island city, then do yourself a favor and skip to #11. US treasuries might be more your speed?
2. Set Clear Goals. Now Cut Them in Half.
What brings you to China? Know before you go (on the institutional dime, that is). Countless foreign investors have passed through fixed-income specialist Michel Löwy’s Hong Kong and Singapore offices over the last two decades, and he’s seen their ambitions evolve with the region’s economy.
“In the past, the idea was to get a sense of investment opportunities over here,” says Löwy, CEO of credit firm/investment bank SC Lowy. “In recent times, it’s more to get a sense of how Asia is doing because of its ramifications for investments back home.” That’s easier said than done, he cautions. “It’s extremely hard to get a handle on what’s truly happening in China. Being on the ground will help. Is it perfect? No. It is far from perfect.”
3. A Business Day Is 24 Hours.
Now that you have 50% fewer objectives, doubling your eligible working time puts you nicely on track. “There is no hour that one can’t be reached at,” Löwy says. “I’ve had experiences of getting WhatsApp messages very late into the night asking, ‘Can we meet in the lobby of a hotel for a drink?’ Via an intermediary, of course.”
4. Beware the Translator Third Wheel.
Speaking of intermediaries: Local and foreign investors alike warn against the time-sucking and due diligence-stifling role of translators. And expect to be understood, regardless of whether your meeting date brings along a middleman.
Conducting due diligence interviews via interpreter can resemble Gchat. “Sometimes you’re really trying to catch the manager with a tough question, but then they have like five minutes to think while the translator works,” laments Scott Chan, head of public markets for the University of California. “Typically, they speak English anyway.”
5. Beijing, Shanghai, and Hong Kong Do Not an Itinerary Make.
“People tend to have meetings in their hotel,” says Jason Zhang, former Asia head for Stanford’s endowment. “Breakfast in the lobby, lunch at a fancy restaurant, dinner at another one, and sleep at luxury hotel in Beijing or Shanghai. But a lot of the real economy happens in different places.” Round out your roster with Chongqing (pop. 29 million), Wuhan (pop. 10 million), or the regional hub for your sector of choice. See the factories; grope the auto parts; grill an entrepreneur for sales flow.
For example, a top US institution’s young team recently did Yulin (pop. 7 million), becoming acquainted with its mineral industry, famed yearly dog meat festival, and local Pizza Hut.
Frankly, anyone needing an explanation of why dumplings are bite-sized lumps of magic wearing dough cocoons shouldn’t go to China. Or anywhere, except a mirror for a hard look at your priorities and life choices.
Done? Good. Now hightail it to Shanghai to sample what you’ve been missing all these years. After that, to Beijing for Peking duck (Scott Chan’s personal favorite). Now that you’re warmed up, the only limit is your sense of adventure. “I remember trying fried ants on toast, and it was actually delicious,” says Löwy. “Go for the exotic, and you’ll do well.”
7. A Red Flag Is a Red Flag Is a Red Flag.
“Three or four years ago, I did an exhaustive Asia search,” recalled Josh Kaplan, hedged strategies chief for health fund Ascension Investment Management, in 2014. “I spent two weeks in China, Singapore, and elsewhere, and met with a ton of funds. Maybe 30 or 40 minutes into one meeting, I thought, ‘This smells really bad.’ The numbers I was hearing didn’t correspond with what the managers put in front of me. Then I start to ask some leading questions, and it all starts to stink. I don’t know for sure if it’s a fraud, but their numbers are still ridiculously good—way too good to be true. I wouldn’t touch it with a 100-foot pole.”
And neither should you.
8. Moutai Tastes Like Gasoline. Drink it Anyway.
The nation’s official liquor and choice welcome drink for foreign dignitaries, Moutai derives from fermented sorghum. Mmmmm. Dan Rather compared the taste to “liquid razor blades.” Newsweek called it “the world’s only socialist luxury brand.” Following Richard Nixon’s landmark 1972 to trip to China, Henry Kissinger declared, “if we drink enough Moutai, we can solve anything.” In the words of one large endowment managing director, “Be prepared.”
9. It’s Not Like the Old Days.
Hardcore New Yorkers fell in love with the city of peep shows, but not for the peep shows (well, maybe some of them). China investors are a similar breed.
Ask Jason Zhang for first-timers’ China tips, and expect a little “kids-these-days” with his thoughtful response. In 2004, Stanford University’s endowment hired Zhang from business school to be the full-time “Asia guy”—years before asset-owner peers or most managers conceived of such a role. “It was a lot harder back then,” he says, when the only route to local groups was a rock-hard network. “Now, you can almost do your search on the internet: ‘top 25 private equity firms in China.’” Almost.
“It’s much more transparent than 12 years ago, just to meet people and figure out who they are,” Zhang explains from his home in California. “But actually, everyone’s running scared from China right now. And that’s when to go and figure out if you can get some insights…” The days of the Wild East may be over, but that’s not why veteran investors fell for China in the first place. (Hint: It’s the dumplings.)
10. Book Another Trip Right Now.
You’ve figured out that calling this a “Guide” was a tad misleading. Alas, an accurate headline—“An Aggregation of Often-Contradictory But Adamant Opinions on China Business Travel and Investment Policy for Western Asset Owners”—didn’t fit on the page. But take heart! The consulted experts reached consensus on one non-food-related point: Effective China trips depend foremost on one’s network, and strong networks require many trips. Experts, was that so hard?
Anyway. Trips to China are like cats: If you’re going to buy one, buy two to keep the first one company. “Is two weeks per year enough? No,” says Michel Löwy, who is closing in on year 21 in Asia. “A couple of weeks per quarter are better. You’ll get a better Rolodex.” For a Sino-rookie, he says, “you’ll need to rely on your bankers, brokers, asset managers, etc. to help you open doors, organize meetings, and access people with a handle on what’s happening on the ground. Connections are critical.”
11. Nope, Cancel This One.
“I think the whole concept is crazy. It’s a glorified vacation,” says one senior staff member of a North American institution with offices in Hong Kong. He disagrees with the entire premise of this article—“Two weeks?? You can’t get anything done!”—except for Löwy’s final point: If you go, go often.
“The best people have options,” he says. “Unless you’re over frequently building up a long relationship of trust, quality partners won’t do business with you. If it’s easy, you’re probably talking to the wrong people.”
All of which is fine and dandy for a massive fund sprouting global satellites. But what if you’re CIO of a $5 billion foundation in Connecticut: Just ignore China completely? “No. I’d walk down the street and hire a Neuberger Berman-type.” There’s a size sweet spot for partners, he argues, between getting access and getting lost. “Find a partner based here, that has a team over there, and watches that team like a hawk.” No site visit? Or boots-on-the-ground research? Or dumplings?
“So Goldman Sachs gets you an audience with the ambassador; it all feels very good,” says this Grinch Who Stole China Trips. “But you could have sat on your couch, in your living room, read the Economist, and learned the same thing—but without the jet lag or hacked laptop.”
Someone get this man a Moutai.