In Hong Kong, the private equity (PE) sector is growing rapidly, and many funds are looking to increase their headcount.
This is coinciding with greater competition in the PE market, as more entities from China come to Hong Kong to take advantage of its more business-friendly regulations and strong financial infrastructure.
All this means that it’s a good time for candidates to look for roles with private equity firms in Hong Kong. However if you’re a recruiter or hiring manager, one of the biggest challenges you are likely to be facing is a shortage of PE talent in Hong Kong as the local labor market struggles to keep pace with the sector’s growth.
Here’s a quick overview of the trends shaping the Hong Kong private equity sector in 2018-19 – and a look at the skills, knowledge and experience that employers will be looking for when hiring PE professionals.
State of the PE market
Private equity is on the rise across Asia. According to the Bain Asia-Pacific Private Equity Report released in March 2018, the Asia-Pacific PE industry achieved its best-ever performance in 2017, with a total of USD$159 billion in deals – a 41% increase over 2016.
The report attributed this growth to higher investor confidence, and more willingness by companies to accept PE funding. Greater China (China, Hong Kong and Taiwan) attracted the most capital, with a sharp rise in public-to-private deals. Southeast Asia also offers big investment opportunities, with its PE market doubling in value in 2017 to $20 billion.
Lower risk, stable returns
Credit Funds and Special Situation Funds are becoming very popular in the Asian private equity market because they tend to offer investors a more stable/fixed income and lower risk. This is contrasted with the more common Leveraged Buyout (LBO) model, which uses a large amount of borrowed money to buy a controlling stake in a company.
The biggest challenge with these fund types is that the products they deal with can be highly complex and unusual. In the Hong Kong private equity world, there is a lack of candidates with the skills and experience required to manage them. It means that if you’re looking to hire for private equity jobs in these domains, you may need to lower your barriers to entry, or broaden your search to other finance disciplines with transferable skills. This applies across the board, from junior to senior roles.
So, how do these funds work, and what hiring criteria do you need to take into consideration?
A credit fund combines the higher returns of private equity with the relative stability of bank finance. It is a type of debt mutual fund scheme which can include riskier (i.e. not top-rated) corporate bonds. Funding sources can include high net worth individuals, superannuation funds and sovereign wealth funds.
Successful management of these funds will typically require experience in one or more of the following areas:
• Distressed funds, including debt instrument purchasing;
• Mezzanine funds, which assist in the financing of buyouts or infrastructure-style investments, and are often used to increase the funds that can be borrowed against property assets;
• Niche funding, e.g. asset leasing and invoice financing (securing against receivables);
• Securitization funds, where portfolios of smaller loans are diversified into components with varying risk.
Many hedge funds specialise in distressed fund opportunities, and thus may be good for sourcing candidates who are thinking of taking up private equity jobs. Mezzanine and securitisation on the other hand are often offered through banks and other big lenders, making these institutions viable candidate sources.
Special situation funds
In finance, a special situation (SS) is where a ‘special’ event – that is, an event other than the usual market factors – impacts a company’s value. A SS fund aims to profit from any increase in valuation that the SS causes.
Typical special situations can take many forms, and can occur at any time. They typically arise from spinoffs, tender offers, mergers and acquisitions (M&A), bankruptcy/distress, litigation, or other less easily identifiable factors.
Special situation funds will require finance professionals who are adept at identifying investments with potential for high growth due to anomalies in the market. For example, this may involve analyzing debt securities for mispricings, or being able to assess whether a distressed companies is worth investing in. If you’re offering private equity jobs that involve SS fund management, it’s worth looking for candidates who are experienced in ‘event driven’ or ‘opportunistic’ investing.
Venture capital trends
Venture capital (VC) activity in Hong Kong and China is also gaining momentum. According to the PwC 2017 Q1/Q2 MoneyTree China TMT (telecom/media/tech) report, private equity and VC investments in the TMT industry grew significantly in the first half of 2017. Major areas of interest include internet, mobile, online video, social platforms and e-sports. Fast growing and innovative companies across China in the healthcare and clean technology sectors are also drawing significant VC funding according to Business Insider.
The Hong Kong biotech sector is also poised to grow in 2018-19 according to the SCMP, thanks to recent regulatory changes that allow biotech firms to go public before they’ve generated revenue. This is expected to generate significant opportunities for investors who want to support local researchers in commercialising their work.
Another important VC trend that recruiters need to factor into their plans is the growing popularity of “for purpose” companies, which strive to be both sustainable and socially responsible, as well as financially successful. As the China-centric “Belt and Road” initiative takes shape, projects that help to promote sustainability, education and social inclusion across Asia can be expected to attract significant VC interest.
Hong Kong is recognised as a leading fund management (FM) center in Asia, with over 2,000 unit trusts and mutual funds as of end-2016. The biggest portion of FM assets are invested in Hong Kong and the Chinese mainland, along with Japan and other parts of Southeast Asia.
How does Hong Kong’s fund market compare with those in other Asian countries today? A big point of difference is the market’s international collaboration. As well as mainland China, funds listed in Hong Kong reach into Japan, South Korea, Russia, India, and other emerging markets. Europe is also on board, with new regulation introduced in 2016 allowing Swiss and Hong Kong public funds to be distributed in each other’s market more easily.
According to HKTDC Research, the Securities and Futures Commission of Hong Kong (SFC) continues to work with the Hong Kong government in developing a “legal and regulatory framework” for fund houses, with the aim of getting more funds to set up operations in Hong Kong.
Other considerations of private equity jobs
Private equity firms in Hong Kong share many similarities with others around the world, valuing strong analytical ability, good networking skills, and degree-level qualifications in accounting, finance and/or business. The city’s large English-speaking population makes it an attractive place for people from around the world to settle. Furthermore, Hong Kong has no capital gains tax and one of the lowest corporate tax rates in the world.
Most firms prefer candidates with at least a few years’ experience, but the ongoing skill shortage may force some companies to consider taking on new graduates with the right academic qualifications. English/Chinese (Mandarin/Cantonese) multilingual ability is also usually mandatory.
With private equity jobs being among the most interesting and well-paid in finance, and many of the key skills being highly transferable, it’s worth extending your search for suitable candidates to other financial verticals.