Institutional Investor Interest Rises As Yale Eyes Gree
Earlier this week I made a disclaimer about personal ties when I wrote about the latest privatization of a US-listed Chinese firm, and now I’ll make a similar disclaimer for this post about the latest talk of a strategic investment by Yale University in home appliance maker Gree (Shenzhen: 000651). My personal interest in the story comes from the fact that I graduated from Yale many years ago, so anytime I see news of its activities in China I’m naturally interested. But if it’s true, this case could also hint that conservative big western institutional buyers may be eying more direct investments in China. Word of this deal follows news of a similar investment last year by a major western pension fund in JD.com, China’s second largest e-commerce company.
China has been a popular investment choice for many western investors for years, attracting most of the world’s major venture capital and private equity companies. But it’s still considered very risky, meaning more conservative investors like pension funds have largely avoided buying direct stakes in local companies. Instead of direct investment, most of these conservative buyers have gained some exposure to the market by giving money to the big China-focused private equity and venture capital investors.
This new investment by Yale would mark a shift from that old equation, if the latest reports are true. Sourcing for the report I read is rather sketchy, citing industry insiders who are saying that a Yale-backed fund is eying a strategic stake in Gree’s state-owned parent. (Chinese article) The rumors have their basis in a public announcement this week by the publicly listed Gree, which said its state-owned parent was conducting a share reform that would involve the introduction of a major new strategic investor.
The actual method of the share reform is a bit unclear, but it appears a big part of the move will involve the transfer of shares in Gree’s real estate unit to an outside investor. That could mean that Yale would gain exposure to Gree’s real estate holdings in the company’s home city of Zhuhai, the underdeveloped special economic zone in Guangdong province across the border from Macau. That location certainly looks attractive, due to the rapid development of Macau over the last decade with the liberalization of the local gambling market.
This new relationship does look more focused on Gree’s property holdings, which isn’t surprising since real estate is typically a more conservative investment favored by big institutional buyers like Yale. But at least theoretically, the investment could also give Yale exposure to Gree’s more high-profile home appliance business, which is run by one of China’s most successful female executives, Dong Mingzhu. One analyst points out that such a tie-up could help Gree in its global ambitions, though I suspect that’s mostly wishful thinking and that Yale would remain largely a passive investor for now.
This new investment by Yale, if true, would come about a year after another major western institutional buyer participated in a new funding round for JD.com, which is preparing to make a New York IPO later this year. That earlier investment saw the Ontario Teachers’ Pension Plan join a larger group that invested $400 million in JD.com, also known as Jingdong and previously called 360buy. (previous post)
I’m sure there must be other recent similar investments in Chinese companies that haven’t been publicly disclosed, since most of these big institutional buyers aren’t required to make such announcements. But this latest report about a Yale investment in Gree, and the Ontario Teachers’ investment last year, certainly seem to point to a nascent trend that could see more of these conservative investors exploring China options. That could be good news for Chinese companies, both private and state-owned, which could gain access to billions of dollars in new funds from these big western investors.
Bottom line: Yale University’s potential investment in Gree reflects a new wave of interest by more conservative western institutional buyers looking to gain exposure to the China growth story.
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