China’s regulatory crackdown on business sharpens focus on ESG investing

Recent events related to tighter scrutiny and a regulatory crackdown on a variety of sectors in China, the second-largest market outside the US for limited partners, have sharpened the focus on ESG as a key investment theme, according to panelists participating in DealStreetAsia’s Asia PE-VC Summit 2021, during the session titled – “Evolving LP-GP dynamics, private markets opportunities & Asian co-investments.”

ESG refers to a form of sustainable investing that takes into account environmental, social and governance aspects.

“There is a very amplified social lens in which the government looks at competition within very large platforms that have garnered a lot of power through the wealth of data they collected,” said Jie Gong, Hong Kong-based partner of UK investment firm Pantheon.

Beijing has introduced a spate of crackdowns on various sectors, from edtech and crypto trading to gaming, wiping out billions of market capitalisation from some of the top companies in the country. It all began last year when China abruptly suspended the $37 billion IPO of Ant Group, an affiliate company of China’s Alibaba Group.

While such legal movements have caused unintended social effects, Gong opined that it was something the market needed to reckon.

“[Given] the large platforms’ excessive power in the ability to stymie smaller players, either by buying them or making them less competitive, the clean-up gives a level playing field for smaller competitors. And our venture capital GPs are not too bent out of shape,” she said.

Echoing the sentiments, Myron Zhu, a co-panelist with Gong and head of Asia private markets at Manulife Investment Management, said investors were not astounded by the Chinese government’s scrutiny.

“China has always been a policy-driven market. What has caused the capital markets a surprise is just the pace [at which] these calls are made in one go,” he said.

“If you put yourself in the government’s shoes to understand what they’re trying to achieve, all these things can be preemptively anticipated or addressed.”

Sustainability in focus

From an institutional investor’s perspective, Zhu expressed, as he aims to back managers in Asia, his firm wants to provide support in areas of ESG, risk management, as well as regulatory compliance oversight.

Amongst ESG investing themes, he said: “Energy transition, with the latest technologies, is going to be so profound.”

For Manulife Investment Management, the emphasis from global and regional investors on carbon neutrality and renewables make long-duration assets such as infrastructure still attractive. “We like [to invest in] digital infrastructure,” Zhu said.

“The usage of digital infrastructure is irrespective of which new business model will work or which new venture will become another unicorn. This is an inevitable trend,” he added.

Gong advocated the digitalisation trend in decarbonisation, pointing to areas linked to 5G technologies, energy storage and electrification of things.

“Technology is not an isolated silo. There are investments that are future-proof from a technology sustainability point of view,” Gong said.

Post COVID-19 outlook

Both the panelists agreed that Asia has shown a higher degree of resilience to the pandemic in terms of investment activities.

Manulife Investment Management maintains its investment thesis towards the region in the post-COVID context.  “It’s a top priority for Manulife, what we call a must-win battle, that is to build up the Asia asset management business,” Zhu said.

Geographies the firm is looking at include Hong Kong, China, Japan and Singapore, among others.

For Pantheon, there is yet to be intense competition chasing deals in Asia, as the region is not as abundantly supplied with PE capital as the US.

“And Asia doesn’t have too much leverage compared with the US and European PE market. That also stands companies in good stead to weather the storm much better,” Gong said.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.