Lei CAI: Casting the Widest Net for Project Search, Flow Operation of Partners
Ms. Yin, a general staff from the administration department of Jiuding Capital, now enjoys discount the same as professional ticket agents, as she often helps her colleagues to order many tickets on the electronic ticket trading platform. “I have to order about 80 tickets every day in this period.” Ms. Yin said, the order amount is up to 102 at most in one day. As for an institution consisting of over 200 members, the working status of staff is much in evidence.
Undoubtedly, Jiuding Capital is a black horse in the domestic investment industry since establishment in 2007. Their extraordinary efforts have left a deep impression on other peers. In particular, their “inch-by-inch” search nationwide and deep exploration in each field by means of concentrated investment surprise other institutions.
Team: Casting the Net for Project Search
The unusual feature of Jiuding Capital is its large-scale team. Currently, most of domestic investment institutions have less than 100 members, while Jiuding Capital possesses more than 200 employees, an amazing number.
It doesn’t mean disorderliness and aimlessness despite of hugeness. According to the introduction given by Lei CAI, Jiuding Capital builds teams vertically and horizontally. The horizontal teams are established for project development in the regional market. Now Jiuding Capital owns about 30 offices across the country and more than 80 professionals.
Its behaviors in the central and western regions before were also impressive, especially their successful investment in Gifore. However, Lei CAI stated that, they exert the same efforts in seeking projects in first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen and second and third-tier cities. The project indicators in each province and region are set according to the local GDP every year. Lei CAI also explained, Jiuding Capital have more investment projects in the west region due to the comparatively lower competitiveness in second and third-tier cities. Moreover, the relative valuation in second and third-tier cities is low, and the severe situation that several rivals compete for the same project won’t happen.”
The vertical development refers to its industry research team consisting of over 100 members in the industries such as consumption, pharmaceutical, manufacturing, agriculture, etc. Each team explores deeply in each field, conducts study of the development status of this industry and due diligence investigation and even participates in post-investment management of some projects. Lei CAI said, professionalism is crucial to the sustainable development in the field of investment. “To this end, Jiuding Capital establishes the business team.” He added that, Jiuding Capital lays emphasis on the development of consumption and pharmaceutical fields, while now starts to enter the manufacturing and emerging industries. “Two business lines will be developed this year.”
“In such way, an interlaced network has been formed.” This is a summary on the project development system of Jiuding Capital made by Lei CAI. This large team is not built at once, but expands based on the clearer strategy and full grasp of the domestic investment industry and industry development.” Lei CAI said, the most basic reason is their optimistic view on the Chinese economic growth and a golden age of VC/PE industry in the next 10-20 years. Considering the high popularity of PE nationwide, the abundant project sources are required to win in the competition. Thus the establishment of a large team becomes feasible due to the former reason, and is also inevitable with regard to the latter reason.
Partners: Flow Operation
Jiuding Capital owns 13 partners which perform their own functions. The main task of Lei CAI is project development, judgment on due diligence investigation and assistance for operation of project team, “all about preliminary work.” The middle work including risk control and project review, and post-investment management afterwards are done by other partners. In the aspect of capital, the specialized partners will communicate with LP, while the overall operation is under the charge of other partners.
Despite of different divisions of labor, there are also conflicts in daily work. Lei CAI said, they dispute with each other on certain issues sometimes. The most common method to resolve conflicts is to hold a discussion until unanimous approval. All partners gather and conduct criticism and self-criticism every six months or every year.
As for Lei CAI, his peers made a comment on him, “his greatest disadvantage is no defect.” Lei CAI said, “This is actually my biggest defect.”
Risk Control: We never fail
Jiuding Capital pays special attention to risk. Once a partner said, “the project may fail to meet our expectations, but no failure is acceptable. Jiuding Capital pursues the relatively high income under the premise of low risk rather than the highest income under the premise of high risk.” When I asked Lei CAI, did Jiuding Capital fail in investment in the past three years? He answered definitely, “No failure happens so far”.
There are two secrets for its success in risk control. “One is to follow the trend.” Lei CAI said, its investment fields and business feature the comparatively low risk and high profit. Currently, the domestic mature enterprises can obtain considerable income from share investment. The other is the mutually independent links such as project development, survey, review and post-investment service on the ground of the complete system. “The standardized flow operation.” Its success rate is 70:1, i.e. only one project is targeted after layers of selection. Lei CAI also revealed some details that the investment managers of Jiuding Capital are required to make investment in the same projects. In addition, Jiuding Capital also has detailed due diligence investigation manuals, for example, specific regulations on the number of interviewed customers, suppliers, rivals, government departments and industry experts.
Tactics: Change thought after financial crisis
Its development process is not smooth, “which is reflected in our investment philosophy rather than investment speed and scale.”
When the financial crisis broke out in 2008, the global financial market fell, and the domestic stock market fell from 6000 to 1600, which exerted a great influence on its investment concept. There are two ways for obtaining profit from equity investment, one is enterprise performance, the other is the price difference of the primary market and secondary market. Currently, most of domestic institutions pursue price difference, as the newly established Jiuding Capital did. However, the outbreak of financial crisis made them realize that they have to seek the outstanding enterprises rather than relying on price difference to realize sustainable development.
Based on this thought, Jiuding Capital seeks enterprises in the widest field, “it is more effective than the evaluation given by one or two people.”
What kinds of enterprises are outstanding enterprises regarded by Jiuding Capital? Lei CAI gave an answer, “the enterprises with sustainable profit-making ability and growth potential.” He also summarized that these enterprises have some common features such as good market prospect, meeting market requirements, keeping pace with change trend, exclusive conditions, mature management teams, etc.
Future: Dip into many industries
Since its establishment three years ago, Jiuding Capital achieved great success twice among 28 listed companies in the second-board market. Jiuding Capital invested in over ten enterprises in the pharmaceutical field, established a huge and intensive project search system nationwide and successfully collected the first RMB fund.
Lei CAI admitted that its development speed is indeed rapid, but normal. “Certainly we should grasp every chance to develop faster under the controllable conditions.” With the growing investment market, the domestic market has great potential. Jiuding Capital seized the opportunity to invest in quite a few enterprises in consumption industry before.
According to its plan, Jiuding Capital will continuously develop based on the current concept in 2011 and give full play to the benefit of the complete system established in 2009-2010. It will continue its present business mode in the next few years. However, it won’t be limited to the current layout, for Jiuding Capital aims to be one of the domestic most competitive investment institutions. “The investment principle is the same, i.e. seek outstanding enterprises, make investment and get profit. Thus, it is easy so long as we insist on this principle.”
Lei CAI said, currently Jiuding Capital focuses on equity investment, and will participate in post-investment service, M&A business and front-end development in the future. “We will be involved in VC at an appropriate time.” Meanwhile, besides consumption, agriculture and pharmaceutical, Jiuding Capital will enter the industries including finance, resource, mineral, even real estate.” Furthermore, Jiuding Capital will go global and develop business all over the world so as to “give full play to the benefit of scope economy and scale economy.”
Most of its founding partners are old friends and classmates, so Jiuding Capital displayed academic style in the initial period of establishment. Besides, several partners have the relevant working experience, for example, Zhongyi ZHAO and Lei CAI respectively worked at Tomorrow Holding and Dikang Group, which are famous for “Tomorrow Series” and “Dikang Series” in capital market and possess many listed companies in industry and finance. These two “genes” endow Jiuding Capital with enthusiasm in industry M&A integration.
Zhongyi ZHAO once said: “it is our ideal to make a contribution to industrial integration.” Lei CAI stated clearly that, the M&A business is still under discussion, but “we will start in the next stage.” Lei CAI gave a more detailed introduction on M&A issues compared with other topics during this interview.
With respect to the current situation, Jiuding Capital still cannot develop M&A business on a large scale, for it needs continuous development and the more perfect capital market. Lei CAI explained that, three conditions are required for M&A, as one basic type of investment business. Firstly, the industrial concentration shall reach some degree.” However, the distribution of some industries is disperse, and it is not feasible so long as no concentration effect exists.” In the meantime, he admitted that, many domestic industries enter the critical point of rapid integration, so it is a good time to develop M&A business.
Secondly, the support of financial instruments is also essential to the large-scale development of M&A business, but this condition is unavailable at present, “for example, leveraged buyout is still unallowable in the domestic financial system.” Thirdly, the mature and developed capital market such as the complete listing and delisting system is another condition.
Jiuding Capital is building a foundation for future business, for example, attaching great importance to talent reserve. “The special personnel in charge of enterprise operation and management will be needed after M&A.”
Lei CAI: Spend 90% of his time on work
Lei CAI dislikes talking about himself. When he was asked about his past experience before joining in Jiuding Capital, he simply said, “I acted as senior executive in a state-owned enterprise before.” In contrast, he showed strong interest in industry topics.
His diligence and efforts have been well known to most people. The fact that 239 flights were recorded by his two platinum cards of airlines in 2009 was often mentioned by media. Lei CAI said that he spends 90% of his time and half of his lifetime on work. “There are various types of people such as career-oriented, life-oriented, and the like. I am career-oriented.” He admitted that his family members had complaints about too much time and energy that he invest in work, but “they already get used to my busy working schedule, and I also try my best to keep a balance.” During the spring festival of last year, he took a half-month vacation. It seems that a half-month rest is rather luxurious for him based on his tone.
Lei CAI has great interest in projects in various fields and diversified types of books. “The professionals in investment industry are required to possess quite strong learning capacity.” Most of his self-charging time is when he stays on the plane. “I mainly read the professional books related to my work and also like reading historic books.”
He was fond of listening to music, especially the Beatles, and loved playing football when he was not so busy before. He was a forward in his football team, whilst now he mainly takes charge of project development and is also in the forefront of the fight.
Jiuding people dislikes “dark horse” or “fierce” used by the media for describing them. As for Lei CAI, he prefers to introduce themselves by “pragmatism” and “diligence”. He said, the partners of Jiuding Capital are idealistic and dream of giving birth to the top-grade investment enterprises like Carlyle, Goldman Sachs and KKR in China in the future.
Jiuding Capital has spent about three years in forming its layout. In future, they will give play to the maximum effect of this system. In the meantime, they are growing up and waiting for the possible opportunities in the development process of domestic capital market. There will be more stories about Jiuding Capital later.