Transcription
You heard me say it before, and I will say it again. Hong Kong is one of the big three among financial capitals in the world, and we are anchored here in Asia. And so now we turn our eye to Asia. Some of the smartest money I know is very bullish on China right now. You just heard a little bit of it there. But there are also opportunities in Asia and some of the major economies like Japan.
Our next panel has that ability to give us a 30,000-foot view and then zoom right into the micro level to let us know about opportunities in this part of the world. So, we're going to be excited to have them up here. You could call them Enoch and the three chairs. Enoch is the Enoch Fun, the CEO of the Hong Kong Academy of Finance, is going to be joined up here on stage today by Fred Hu. Fred is the founder, chairman, and CEO at Prima Vera Capital. Uh, we also welcome a Hong Konger, Jean-Eric Salada, who is the chairman at EQT, and as well Tang Lelay, who is the founder and chairman at Hillhouse Investments. Enoch, the floor is yours. Let's hear about Asia.
Thank you very much, Andrew. And ladies and gentlemen, a very warm welcome to our final panel. And let me just tell you for sure that we are saving the best for last. Now, throughout this morning and also in the afternoon, we've actually explored now multiple themes about asset, different asset classes. Today, as Andrew mentioned, we are actually going to dwell deeper into Asia. Now, before I start all that, I should mention, as I said, this is pretty much a star lineup. They're all founders of their own investment houses, one of the most uh, the three of the most influential investment houses uh, in Asia. So, we're gonna get a lot of wisdom from these speakers today.
So, this morning uh, we've done rapid-fire questions. We have also done ask AI questions. I'm going to combine two and do one quick-fire ask AI question. So, my rapid ask AI question is this: I asked Deepseek what would be the most market-moving event in 2026 in one word. Deepseek came back with "cyber attack." All right. So, I'm going to ask these gentlemen here. So, starting with you, Fred, what would you be the one word for shocking the market next year?
>> Mimic deep. Think. Let me think. R1, R2, R3. Energy.
>> Energy.
>> All right.
>> I would go with AI. The impact of AI on businesses.
>> Okay. So, AI.
>> I would say one word could deliver. We have talked too much. They need to deliver.
>> That's a good reminder of this panel, actually. So, we will move on.
Now, as I mentioned, you all are founders of your own investment houses. Uh, and you are definitely very well reputable across the world as well. Um, of course, you have got significant operations in Hong Kong. Could you share with us how you actually make use of Hong Kong, your all Hong Kong operations in developing delivering the businesses, servicing your clients? Um, and also what you like about Hong Kong in general. Yeah, Fred, I'll start with you again, and then...
>> So, last four weeks I've been to 20 cities across the globe, but Hong Kong is my home. So, I could have been in any of those 24 cities, but Hong Kong is my home.
>> So, home. Okay. Sean.
>> Well, I've lived in Hong Kong for 36 years. I arrived in Hong Kong in 1989 and I've lived here ever since. And um, I love Hong Kong. I think Hong Kong is a wonderful place to live and also to do business. And uh, it's where we started our business and where we're now headquartered uh, not just for Asia, but in my new role as next year nominated to chair EQT Globally. They'll still be based in Hong Kong for that. So, one of the few global private equity firms that actually has a chairman in Hong Kong. Um, I think Hong Kong, you know, to me, Lelay is going to probably mention that we like to go wake surfing. You know, that's one of the things that's beautiful about Hong Kong is that in addition to being a great place to work hard, but you can also within 15 minutes, you can be on the water or you can be on the trails, as we heard in the HKMA summit. So, I think as a terms of balance, life balance, work-life balance is fantastic.
>> I would I would add to that because uh uh one uh one uh claim to fame for me is to uh you know actually teach uh Jean uh to wake surf in Hong Kong.
>> Still learning, still learning, but...
>> Still students, better than teachers. You know the uh uh no, I I think one thing hugely underestimated is uh how because everybody, every time we have conference and meetings in the central, actually just 15, 20 minutes away, you are in the water. And uh uh John and I were talking about this, we highlight uh four trails next year, the conference, let's highlight the Hong Kong water.
>> Okay. Please.
>> So, I'm not risk-taking to contribute his wake surfing video to the...
>> Yeah, I'm not as wild as these two guys, but you know, I love Hong Kong. I enjoy outdoor and hiking and um, you know, for um, really the merit of Hong Kong, I just think for me is very simple. Hong Kong is the best of both worlds. It's quintessentially Chinese, but it's also quintessentially international. There's no place on the planet like Hong Kong.
>> I once bumped into Fred in Big Wave Bay hiking down from the mountains with a few people, and uh, they had run out of water uh from their hike. They've been hiking for four hours. Fortunately...
>> Thank you for saving me.
>> Yeah, we we were there. I was there with my family on the beach. I gave them a couple bottles of water, and they carried on.
>> Just so you know, at the pre-meeting, when we were just trying to plan for this, they decided that they're just going to talk amongst themselves in front of you. So, I'm happy with that as a moderator. But okay, let's just get to uh, bit more serious stuff, if I may. Fred, I could start with you. I wanted to get your thoughts on the role of capital markets in China's economic transformation going forward. Now, I want to start off with something that takes you down memory lane. So, we I used to work uh, together quite closely with you more than 20 years ago. Uh, you were a leading market economist on China for Goldman Sachs. Back then, in 2001, you published a report titled "Dux Capital Markets Are Transforming China." So, that report basically outlined with incredible foresight uh, the role of China's capital market reforms and also its opening up to foreign investors, which also happened to be a great business plan, very profitable business plan for Goldman's investment banking business back then. But it is really important to see how the capital market is supporting the real economy throughout the last 20-some years. So, looking forward, with all the economic transformation going on or planning to do, particularly under the 15th National Five-Year Plan, um, what do you think the role of the capital market is for China's economic transformation going forward? Now, I take it that probably in the last few years, we've had the Western media kind of uh, imposing some skepticism, if you like, about the policymakers' resolve in the capital market reforms, but we've heard yesterday from the policymakers at the summit that they are very determined in pushing and promoting the market reforms. So, where, what's your take on that?
Well, first of all, I'm amazed, Enoch, you could uh, still remember the research paper published 25 years ago. Awesome. Um, so, as you can tell by the title of the report, "Dux Capital" in German, from Karl Marx, it sort of reminds us, you know, this room of investors, that the stock market is the most capitalist of all institutions. And um, the Chinese leadership, despite all the ideological biases uh, about China, was ensuingly pushed through uh, capital market development. So, 25 years ago, Chinese stock market was uh, is emerging, ranking number eight globally, behind every uh, each of the G7 countries, 500 billion in total market capitalization, of which maybe 10, 20% were free float. So, it's really, really insignificant in the global um, capital markets. And uh, today, Tencent alone is much bigger than the entire market cap of China back 25 years ago. So, now China is the second largest uh, of the US, bigger than any other G7 countries except the US. Um, but the good, exciting is, there's still so much potential uh, lying ahead. Um, in terms of market cap to GDP, US is over 200%. That's why, you know, the US has a stock market over 60 trillion, where China is about 15 trillion. So, that says this actually, by the way, Warren Buffett's favorite metric, China is cheap. Okay, there's a far, far more upside uh, in coming years. You know, the number of companies uh, actually, there are more public companies in China than in the US, you know, 5,000 versus 4,000. But again, you know, since the diversity, you know, stock selection, you know, Lelay and, you know, is expert that across so many industries, you get a diverse uh, equity portfolio. And the and the bottom, the same 30 billion uh, 30 trillion U.S. dollars, second only to the. So, huge potential ahead, and capital markets are definitely going to transform China and um, um, you know, ensure sustainable uh, economic growth, also uh, empower Chinese middle class to have retirement savings and um, you know, wealth effect to spend, so, so make Chinese economy uh, much more sustainable over the medium term.
Thank you, Fred. Um, so, can I move on to Sean? Um, I wonder if you can reconcile something that, building on Fred's comment, something a bit more contradictory, um, which is, um, that you looking at the data on the uh, capital raise uh, for China-focused PE funds and VC funds, they've actually slowed quite a bit in recent years uh, because of maybe slower headline growth, the more sort of uncertain macro environment. So, as I said, how, how do you reconcile that? Um, what do you see as the current state of the PE and VC ecosystem in China? Um, and what sort of catalysts are you looking for in kind of seeing a recovery in that market?
>> Yeah, I I'm actually bullish on China, and I'm actually very bullish on Hong Kong as a result of what's going on in China. If you look at the 15th Five-Year Plan that's just come out, the, you know, the the points that are emphasized there: innovative manufacturing, in investment in technology and AI, supporting the consumption, the shift to consumption, and the fourth one is really the capital flows in and out of of the country and and and and encouraging more foreign investment and opening up of services. That's really going to benefit Hong Kong. And uh, as I look at what's been happening in China, we've been through a difficult period with sentiment and with a cyclical downturn, but I was I was just in Beijing last week actually for a few days, and what you're seeing on the ground in terms of innovation is just mind-blowing. The kinds of um, the, you know, the the factories that you're seeing and the way they're using robotics in manufacturing. I went to see Xiaomi's electric vehicle factory, which is extremely impressive if you haven't seen it. Uh, very few people there, a lot of robots. Uh, and uh, if you talk about what's happening in private equity and venture capital, I would say that um, you know, the the private equity market is developing in China. So, it's it's the buyout market, I'd say, is relatively immature in China, but it's it's starting to develop. But I think what's really interesting in China at the moment is the sort of the growth capital and the venture capital market with the innovation and the kind of highly innovative companies that you're seeing. And then of course, the role that Hong Kong is playing for exit and liquidity, which I think has been one of the big challenges for uh, for the industry uh, that's also really opening up now with what's happened in the last 12 months in Hong Kong with the stock market really coming back to life and global investors starting to reallocate. And just to echo what was said earlier uh, in one of the panels on the kind of rebalancing that we're seeing in the world, we see that as well. A lot of clients that we talk to, particularly non-US clients that we have in our in our business, they feel like they're overallocated to dollar assets, they're looking at diversification, and they're looking at ways to rebalance their portfolio. And one of the big beneficiaries of that, I think, is going to be Asia, and is going to be Hong Kong and China.
Okay. Now, next up, thank you, Sean. Uh, next up, I wanted to talk to Janzong because um, there's this quote-unquote, um, global AI race going on, right? Um, it's quote-unquote. Okay, so we can debate that. But the Deepseek moment earlier this year basically marked maybe a turning point in China's overall AI narrative, highlighting not only rapid model development is important, but also a growing ecosystem of homegrown innovation, also scalable infrastructure. So, in your view, Lelay, what is actually China's niche in AI?
First of all, I'm not sure this uh AI race is the right characterization because I really believe this is not a zero-sum game. It's if you believe this is sort of the electrification industrialization moment of humanity, then that's going to benefit humanity at large and China uh rather wrongly just take a different model uh from the US, which mostly characterized by high power, high capex, closed loop, high monetization model, where China is doing a very much a low-cost, open-source model. We can debate on the models, you know, forever. I I don't have any insights uh specifically on large language foundational models. We're not investing in models. What we are really seeing is earlier your first question, I said the word "deliver," which I happen to believe that China going to be probably the first to deliver much more on the application layers. That's what we saw in mobile internet when the the apps, you know, coming out from Messenger and WhatsApp, ICQ, and turned out to be WeChat, that is much, much better super app than any other apps that you are seeing in the mobile world. And similarly, you saw that in the in the financial services, Alipay and, you know, WeChat Pay, and mine on delivery, and uh, uh, on the social. And uh, just seeing way more application layers innovation. If you look deeper in that uh, delivery, let's just use this word for now, that delivery mechanism, you should some logistics behind it, just that that quick, fast iterations, the R&D engineering dividends, the massive use case, the readily uh, huge consumer markets that people want to embrace new technology and don't mind trying new things, and uh, and the and and a low-cost model of doing that. And I think it's uh, we might well see a lot more in the next stage of application layers that uh, China and broadly Asia going to going to be a big uh, innovator in that.
>> Yeah, can I... so in earlier uh, first question, I didn't say AI because I anticipate, you know, maybe John and Lelay are going to say AI. I mentioned energy. So, right now, as you know, I think there's a race, but unlike people in Washington uh, you know, the race is still ongoing, right? It's like Mars, not the sprint. I I don't know who will end up in the finish line. And I think I don't want to be dismissive of US leadership in AI, but I'm very, very, very confident China will be a leader uh, in the AI revolution as well. Um, so AI is quintessentially linked with up to data, with the uh, human talent, engineers, and with electricity, right? Compute power. It's not just compute, but also power. So, China has the world's most advanced uh, and the largest uh, electricity uh, power infrastructure. So, the country generates 3.7 terawatts, okay? That's more than three times as big as the US. And in fact, every year, China grows the, you know, grid capacity by around 18% per year. Now, there's been a lot of investment into uh, power infrastructure, you know, since 2023, 2024, but it's about three to 5% annual growth. So, I think this alone would also show, you know, China has tremendous promise uh, in the AI revolution.
Okay, moving on to the rest of the region. Thank you. That's very insightful. Um, I wanted to um, maybe go back to Jean about Japan. There's been quite a bit of interest there, probably because of deregulation and corporate governance reforms and everything. You're doing quite a bit on that. Uh, can you share with us your insights?
>> Yeah, I think Japan is it's a it's a deregulation and corporate governance story. So, 2019, they passed a law called the Fair M&A Guidelines, and in 2023, they passed another set of guidelines called the Corporate uh, Corporate uh, uh, Corporate Takeover Guidelines. And essentially, the first one was about the need for public companies to establish a special committee if they receive an offer from an outside investor. And the second one kind of took it further and made it a kind of a fiduciary duty of directors of the board to take into account shareholder value primarily over the interests of the board members and the management team, which historically, that's not been the case. And so, the combination of these big regulatory changes has led to, and and they've really stuck with it and and backed it with a lot of other enforcement measures, has basically led to a surge in shareholder activism in Japan. You now have over a hundred shareholder activist funds in Japan. And what these guys do is they come in and they take a five or 10% stake in a listed company and then they agitate for change. And so, they are causing a real upheaval in the corporate environment in Japan. And there's also kind of a mindset shift now that's backed by the government, which is that you now, if you're a publicly traded company or if you're a corporate generally in Japan, you need to take shareholder interest into account, and you need to focus on your core business, and you need to figure out how you drive value in your business. So, this has resulted in a huge surge in deal flow and uh, and a huge surge in private equity activity. And so, it's now, I think, a 40 or 50 billion dollar M&A uh, PE market. This year alone, it's already $40 billion of investment in Japan, up sort of 50% year-on-year. And for us, it's become actually our most active market in the region. We've just signed a $2.7 billion take-private of a large elevator company in Japan called Fujitec Elevators. And we're just seeing more and more activity like this. And historically, generally in Japan, you've been able to make good money on investments because there's a lot of undermanaged assets. There's a lot of sort of inefficiency that's in the system. And once you get better governance, once you get an active management team in place, there's a lot you can do very quickly to drive value creation in the businesses.
Yeah, it's great insight. Um, so Fred, for the rest of the region, particularly Southeast Asia, there's been sort of uh, the market is growing. China plus one has been kind of the main catalyst for driving interest, but access has been a problem, right? And also the market has been quite fragmented. Any thoughts on your side, Fred, on Southeast Asia or just rest, rest of region?
So, you know, Southeast Asia um, is tremendously uh, promising uh, economic growth and middle-class innovation and uh, investment opportunities. But unlike China and uh, unlike India, uh, you know, it's not a homogeneous market, it's quite fragmented, right? So, I think the regional integration is really, really important. You know, so, you know, you don't think of just individual markets, often times they are pretty small and has all the idiosyncratic uh, risks in terms of regulation, law, and the business culture. But I think as uh, as you um, make headways in free trade integration, and particularly for Chinese companies, you know, actually the the single biggest direct investor in um, in ASEAN, and also uh, the biggest trading partner with ASEAN. I think we go there with our portfolio companies. So, they have on-the-ground, boots on the ground, they have uh, operations there. So, we uh, help us understand the risks uh, as well as the opportunities.
All right. Thank you. That's that's very useful. Now, we still have uh, about five minutes or so. I wanted to also hear uh, your thoughts about running your businesses because at the Hong Kong Academy of Finance, one key um, mandate is really promote leadership development. So, I'm hoping to hear your thoughts about how you've grown your leadership team. What are you looking for? Any particular initiatives that you put out uh, with your firm that actually helps to promote leaders? Um, and what was the result in helping or making an impact on your firm's performance? Janzong, can I start with you?
Uh, sure. Um, you know, our culture, sort of, we always emphasize intellectual curiosity, intellectual honesty, and the teamwork that typically exemplified in the financial institutions, professional service organizations. But what we found over the years, one of the best training sort of grants actually sending our promising top-performing uh, young employees and associates to working our portfolio companies. Actually, they work inside portfolio companies uh, uh, for a couple of years and coming back. We found that is tremendously helpful to them and uh, and adds a lot of value in our own investment discussions. And they just got into the nuts and bolts of running the businesses on a daily basis. A number of our partners actually now in the firm worked in the portfolio companies and coming back, and uh, they do uh, they do really great jobs, and they are so much, they have so much better understanding on the operation level. So, I thought that would uh, now we almost like uh, getting a bit more sort of program rotating people and getting people running different businesses.
Sean.
>> I think there's a there's a difference in our industry between doing good deals and building an organization and building an institution or building a franchise. I think you have to make good investments and know how to be a good dealmaker in order to to stay in business. But in order to scale and to become a real franchise business, you need to develop an organization. And that's a slightly different skill set, and it and and it's a slightly different set emphasis that you need to put into your business. And that's something that we've really focused on over the years. And I'd say a few things that we've done that have worked well for us. One is to really uh, promote from within. Always promote from within and to build a culture that is a sustainable culture within the organization. So, if you look at our partnership, we have almost 20 partners in the firm now just within Asia, and the average partner has been with us about 17 years. So, it's it's that kind of culture of continuity, number one. Secondly, we do a lot of mentoring internally uh, where we assign a sort of a senior person to a very junior person, and I actually do one or two myself a year as well, where you just continue to sort of stay in touch, see how people are doing, help nurture the talent, and sort of help to to grow the talent internally. So, I think just emphasizing talent development is a really important part of our industry, and going forward, it's going to be even more important because at the end of the day, coming back to the point that Lelay mentioned about delivering and performance, which is what it's all about, and distributions, um, it boils down to the team, your talent, your capabilities as a firm. So, investing in your capabilities and making those capabilities more repeatable boils down to, you know, how strong your team is and how much effort you're putting into that. And one touching point is that you actually do the mentoring yourself to the juniors as well. Is that what you mentioned?
>> I do. I do some. Yeah, I do. I we all of the partners do, but I also get involved. I put actually a lot of emphasis into the year-end review process because I think it's really important.
>> How big is how big is the team then? Are you in terms of your operations?
>> We have 350 people across the region, of which about 180 are investment professionals.
>> That's a big team.
>> All right. So, this is how you manage as as you sort of look into their performance reviews and stuff.
>> Well, we have a pretty automated like internal review process where we have a very systematic way of, you know, of doing the year-end reviews and setting objectives, and each of this, each of the partners, each of the managers would review people within their organization.
Great. Fred.
>> Yeah. So, I agree with uh, some of the great uh, insights shared by Lelay and uh, and Jean. So, I do uh, emphasize the importance of mentorship. You know, that's reflecting my career at Goldman Sachs. You know, I was fortunate to have great mentors like Hank Paulson and others. And I myself also served as a mentor for many of the upcoming leaders. I think that's is really, really important for leadership development. Second, you know, learning. You know, our industry is full of bright, ambitious uh, people, but I also want to make sure people have a bit of humility. So, they obviously know what they know, but they should also be self-aware of what they don't know. So, if there's any gap, it's really learning, right? Lifelong learning. So, even though you have all the best degrees from the best universities, uh, or Harvard, you know, you still have a lot you don't know. So, you have to keep learning. So, when I, I travel like a crazy, but when I go to the office, meet the people, senior people, you know, the first question is, what book have you read, you know, last couple of weeks, right? Then they share something. And you know, actually, you know, in fact, we have a book club, and some we even share in uh, you know, in in the WeChat public account, but mostly among ourselves. I think this lifelong learning, I think, is also a critical ingredient for uh, leadership.
So, great tips. See, common to portfolio companies, take care of the review process, you're hands-on on that, and of course, as Fred said, the mentorship as well. So, quite a lot of, and book club, sorry, I should mention. So, thank you very much. Um, unfortunately, we have really run out of time. I would want to listen to them more, but I've, I'm sure you all agree with me that they have definitely delivered again. Thank you very much, gentlemen. [Applause]