以下文章为《经济学人》对云月乐学平台旗下投资的尤伦斯当代艺术中心的教育报道

FIAMMETTA ROCCO | FEBRUARY/MARCH 2018

PHOTOGRAPHS  KANGKAN

IMAGINING A NEW CHINA

All along the length of the attic at the top of the Ullens Centre for Contemporary Art (UCCA) in Beijing runs a long corridor that opens on to a series of small rooms. Not many of the visitors who flock to the UCCA’s main exhibition spaces downstairs, dressed in chunky trainers and taking selfies, ever make it up here. But the people who do are art lovers all the same. Just a different sort.

Bright sunshine floods in through the small windows set high up in the walls. A square table fills the room, its legs cut low enough for children to sit comfortably around it. There are eight of them, all aged under seven, and their heads are bowed in a dark circle of concentration.

Having run around outside collecting leaves, sticks and tree bark, the children are trying to make something of the different textures. They focus on the feel of the objects and how they change as you run your fingers around their contours. Unusually for China, the teacher offers little in the way of instruction. Instead, the children are encouraged to be curious, to use the raw materials they have collected and to talk among themselves about what they’re doing. They are learning creativity.

What these children absorb here may change their lives for ever.

What is taught will certainly transform the UCCA.

Founded in late 2007 in the city’s 798 arts district by Guy Ullens, a rich Belgian art collector and patron who made his money out of Weight Watchers and sold a collection of Turner watercolours to get the project off the ground, UCCA is Beijing’s top contemporary art space. Its ​ exhibitions bring in 1m visitors a year.

By 2016, Ullens was 80 and thinking of selling. One potential purchaser was Chen Dongsheng, a prominent party man who is married to Mao’s grand-daughter and who, in 1996, founded a big insurance company that also plays around the edges of the art world. But Ullens, who was concerned about his legacy as an art lover and philanthropist, was persuaded that another group of investors would care more about the UCCA’s future as a not-for-profit.

Jerry Mao, a 35-year-old Shanghai entrepreneur, and his business partner Derek Sulger, a British-American financier who used to work for Goldman Sachs, set up a private equity firm, Lunar Capital, focusing on children’s clothing, babywear and healthy snacks and condiments – all investments aimed at prosperous Chinese parents who are willing to do almost anything to help their children get ahead. Contemporary art doesn’t look like an obvious fit for Lunar – until it is seen through Sulger’s and Mao’s eyes.

They believe that an unmet appetite for contemporary art, and especially for artistic education, creates a business opportunity. “The Chinese are very hungry for better and better education experiences,” says Sulger. The UCCA, they believe, is the only institution in the Chinese contemporary-art world that comes anywhere close to being a consumer brand.

Key to this is Philip Tinari, the UCCAs 38-year-old American director. A Fulbright scholar at Peking University who moved to China just as the underground art movement of the 1980s and 1990s was becoming mainstream, Tinari found himself translating the catalogue for the 2002 Guangzho Triennial. He never looked back. Today, Tinari is one of those rare people in the art world who can speak knowledgeably to Chinese artists about what they’re working on and also make sense of the art world to people who know nothing about it.

Under its new ownership, the UCCA will be divided into a not-for-profit organisation and a commercial one. The first will continue to put on major exhibitions. One to look forward to this year is a retrospective of Xu Bing, a printmaker, calligrapher and installation artist who has taught many of the coming generation of Chinese artists. Xu, whose work came under government scrutiny after the Tiananmen Square massacre, was one of the key artists featured in “Ink Art”, at the Metropolitan Museum of Art in 2014, but he has never had a retrospective in China.

On the commercial side, UCCA will have a retail arm (a “concept store that sells artsy things,” Tinari calls it) and develop special projects, such as one-off pop-up art events for property developers who want to use culture to give their shopping malls a bit of class. The biggest opportunity, though, may well be in education.

Chinese schools place heavy emphasis on memorising, not least because mastering Mandarin is so hard; it takes children six years to learn the 3,000-or-so characters you need to read a newspaper. In other subjects, such as history and geography, rote learning is also the norm. Not only does the government consider analysis and critical thinking dangerous qualities for Chinese children to develop, but the system is also heavily skewered towards exams. The competition to get into the best middle and high schools is fierce. Teenagers are made to cram for years for the gaokao, the competitive university entrance exam, which tests Chinese, maths and English, leaving little time in the curriculum for exploring other ways of learning.

There are growing complaints – especially from entrepreneurs – that China’s education system encourages emulation rather than innovation. Jack Ma, the founder of Alibaba, China’s largest e-commerce company, has voiced such concerns. “If we are not innovative…if we are not creative enough it will be very difficult to survive in this century.” As the economy matures, manufacturing shrinks and services expand, these worries will grow.

Some parents who have reached the same conclusions as Ma are searching for ways out of the gaokao rut. Hundreds of mainstream schools now offer an international curriculum; Waldorf schools, inspired by the philosophy of Rudolf Steiner, are increasingly popular. It is the appetite for such alternatives that has created an opportunity for UCCA.

In the heyday of communism, Chinese parents who wanted their children to learn about art took them to Youth Palaces – Soviet-style community centres that promoted technical excellence by focusing on realist drawing, painting and sculpture. Even now, art teaching remains very traditional. “What we’re doing,” says Tinari, “is quite different. “It’s about using art to spark or inspire children by promoting a creative mindset, a creative mode of inquiry.” UCCA describes its curriculum as “promoting self-discovery and self-growth through art as a medium, allowing every child to experience the environments where they grow up, and to reflect on who they are as well as what path they will take within these environments.” Children explore the seasons, through courses “on the beauty of yellow in nature”, for example, or on sound art using birdsong.

Most of the learning in the UCCA’s classes is being done by the children on their own – which, to some parents, can seem both confusing and unstructured. But despite such misgivings, the approach seems to be catching on. Parents report that their children are more talkative and more curious.

A year after the UCCA started its weekend art lessons and workshops, nearly 400 children are signed up every term. Sessions cost 245-380 yuan ($38-58) per hour, and parents have to pay 21,000 yuan upfront. Crucially for the UCCA’s cashflow, education is already bringing in nearly $1m a year.

The next big challenge is to try to expand the model beyond the UCCA’s own premises. Whether this means starting new schools of its own or developing textbooks and art materials remains to be seen. But the UCCA folk sense they’re onto something important. “As people become more affluent,” says Sulger, “they want to do things to promote creativity, something that might just help their kids become the next Steve Jobs.”

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The most important event of the first quarter for our team was the Chinese New Year Spring Festival. The year of the Rooster symbolizes fidelity and punctuality, with its early morning crowing perceived as a call to action – urging us to roll up our sleeves and get to work. The holiday also rings in the busy season for us, with new deals commencing in earnest, annual budgeting finalized, and strategic planning meetings.

Macro discussions at this time last year centered on debt in the system, fiscal stimulus, and money flowing offshore. This year the focus remains on debt, asset price inflation, retail sales gains, and the stabilization of the RMB as capital outflows slow. Debt as ever remains the X-factor that weighs on valuations, perceptions and the risk premium many associate with China. The observers we trust the most believe this is not a systemic concern, but for every two in that camp, there is a Cassandra with the opposing view. What all should agree on is that the effects of last year’s stimulus measures are indisputably material. Retail sales running at double-digit gains continue to mirror the underlying trends we see in our portfolio companies, and in the pipeline businesses we are targeting. Chinese New Year sales reached RMB 840bn, up 11.4% year-over-year, with tourism up similarly to 100bn from 90bn last year. Overall, China’s long-term growth trajectory remains on track, namely:
(i) transitioning China from an export and investment-led growth model to one empowered by the domestic consumer, (ii) promoting global trade and commerce through initiatives such as One Belt One Road, and (iii) further liberalization of the capital markets. The recent announcement that the US will soon restart beef imports to China, which were initially halted in 2003, will provide an attractive alternative for Castle Snack’s to source more competitive pricing for raw beef for its beef jerky.

Capital controls have limited our ability to distribute investment gains, but money staying onshore has created demand for investment, including a surge in the number of domestic IPOs. Bloomberg reported that outbound takeovers by Chinese companies buying offshore assets are down 67% this year due to capital controls, the biggest drop since the financial crisis. Regulators continue to place obstacles in the way for getting funds offshore, which has helped the RMB stabilize to a far greater degree than anticipated. It has also made for very high breakup fees, something, to reassure, we very much have in place with exits we are working on.

Our industry is evolving as well. There is a notable uptick in demand for private equity from domestic entrepreneurs and founder/managers, which we believe will continue to serve China’s capital markets and our strategy well. Venture still attracts the most mindshare, and probably the most capital as well. However, in the more mature private equity strategies, we believe control continues to stand out as offering the best risk-reward, and we remain an early mover. Skillset and focus is winning out versus the pure capital, relationship-driven approach, and younger team members and management are at a distinct advantage as opportunities and structures evolve very quickly, especially onshore.

We are seeing a few key reoccurring themes and trends which continue to drive our investment strategy. Firstly, we remain focused on building scale through platforms and believe that rollup strategies work. Secondly, we will keep fighting for control. The more control we have, the better the outcome will be and the easier we find it to make improvements and scale our businesses. Thirdly, move quickly. China is the world’s most dynamic economy, and everything moves faster. Changing management, rationalizing product lines, or implementing change is better done fast and swift. Lastly, be mindful of leaving cash on the table. We were early to exit an investment we held in Hangzhou Kings at well above cost due to concerns over our status as a foreign shareholder. We chose to exit rather than propose creative structures to our LPs that could, perhaps, have retained our involvement despite layering on structuring risk. Hangzhou Kings went public domestically this quarter, and after trading at near its limit nearly every day since, the current valuation of the company would have implied more than 12x our invested cost. As we plan for future exits, we will work to educate our investing partners on where we may be able to take prudent risk to capture upside in situations where often structures require more work to understand.

That leads to the greatest challenges we face in our portfolio: modernizing thinking, continuing to execute, and accelerating the pace of all that we do. China today is about the new taking over from the old, modern outpacing traditional, China’s youth consuming much differently than their parents, and young managers moving faster and more creatively than their 45-year-old-plus peers. We believe that our ability to quickly modernize, whether in Castle Snack’s manufacturing operations, Yao Taitai’s products and packaging, or Yeehoo’s distribution, is truly where we can move the needle for our partners.

This Chinese New Year, we celebrate the 15th anniversary of China’s accession to the World Trade Organization. GDP per capita now exceeds US$8,500, up from US$1,200 in 2001, and the World Bank classifies China as a middle-high income society. Morgan Stanley believes China will achieve high-income status by 2027, yet China only ranks as the 75th richest nation per capita on earth. There is still a long way to go.

Highlights from our businesses
The strength of the Chinese consumer delivered for our companies this year, dwarfing any drag from the more sluggish aspects of the broader economy. Our businesses continued to grow revenue, with profits rising and the following notable accomplishments:

– Yeehoo ranked as China’s top babywear brand, tripled its November 11 Single’s Day e-commerce revenue, and attracted numerous suitors
– Castle Snacks completed two further acquisitions and reached domestic-IPO scale
– Lao Heng He quadrupled e-commerce sales growth, and doubled its traditional channel sales, two of our most important KPIs

Exits and distributions
We had success translating momentum into exits and generated distributions from several of our businesses during the year, which in total should return limited partners a substantial amount of capital. In most cases, comparable valuations for our businesses rose considerably, which will drive further uplifts in valuation. While we generally do not underwrite based on multiple arbitrage, we believe it presents us with tremendous optionality for additional upside.

Capital committed to new investments
We committed more than $100 million to new investments during the year. We were most aggressive in buying snack food companies, with the acquisition of Yao TaiTai, Orchard Farmer, and LifeFun. We also closed our investment in Honworld.

While this represents a growing amount of investment for us, it is still small compared to the size of the opportunity we are addressing. Far too small in fact. In critiquing our own performance, we believe that we have left too many opportunities sitting on the table, where we could have leveraged our platforms and driven growth at reasonable valuations. In babywear, for example, there were several large acquisitions we should have made, where investment and execution risk could have been mitigated by leveraging our market leadership. We missed similar opportunities in snack foods. We will work to better present these investments to our investing partners in the future, and ensure that we do not miss chances like these again.

Pipeline and investment focus
You will hear more from us about baby- and kids-related businesses, snack foods and condiments. Our team has strong conviction that our foothold in these sectors is an enormous opportunity to put more capital to work and deliver investment gains. We have about a half-dozen new platform concepts under serious consideration in areas like early education. We believe that we can leverage the large base of VIP customers we have built up through our Little Star Brands platform and provide Chinese families with more professionally run, higher quality educational services to compliment the clothing and supplies that our brands provide. We look forward to discussing similar ideas in travel, cosmetics, and other sectors with you soon.

Risk factors
We begin the year with more of the same concerns over a potential credit bubble, the weakening RMB, and the increasing the risk of some form of trade war. Domestic politics will also be a factor as the quinquennial process of making leadership appointments, including Xi Jinping’s likely successor, will occur.

Goldman recently postulated that a hard landing is likely over the coming three years. Morgan Stanley takes a different and very bullish view on China, believing that a shock will be avoided and a focus on domestic consumption and services will lead to high-income status by 2027. So, Goldman fears a crisis, Morgan Stanley urges focus on the long term positives, and, at Davos last year, George Soros said he was no longer expecting a hard landing, but already “observing it”! From what we see in our businesses, we believe that a series of soft landings occurred in 2008-09, 2012-13, and 2016. Together, these may be the speedbumps that slow growth, lower valuations, accelerate restructuring, and prevent the economy going off the rails. For now, we concur with Morgan Stanley (“[they are] able to navigate [it]”).

As for our investment strategy, we believe that for so long as China remains underdeveloped, with a high savings rate, reasonable asset prices, and a growing middle class of aspirational consumers, the opportunity to buy good consumer-focused businesses with the potential for growth at reasonable prices is compelling. We remain convinced that putting capital to work and mitigating risk through our operational efforts, disciplined focus, and ability to leverage control is a wiser course of action versus remaining underinvested.

Potential surprises
Readers of our year-end letter (and of Nostradamus’ works) want predictions. Below is a recap of how our forecasts from last year fared, and the trends we believe remain in place based on the feedback we receive from our businesses, management teams and dealmakers:

Last year we forecasted that the impact of one-child reform would kick in. And it has. CLSA recently reported that China’s birth rate recovered to 12.95% in 2016, the highest since 2001. Expect the birth rate recovery to continue near term with 18-20 million new-borns in 2017-2020 – a “mini baby boom” that will drive consumption. We also predicted liberalization of the Hukou System would fuel further urbanization and internal migration, which was premature but remains low-hanging fruit to drive future consumption, and we believe it will occur soon.

We believed that the upper middle class would surprise and deliver non-linear growth rates of premium consumption in areas such as healthy food, overseas travel, education, healthcare and higher quality apparel. This trend continues. Each of China’s online shoppers will spend US $473 on foreign goods this year, up from $446 in 2015. Luxury brands like LVMH, are reporting “better momentum after a tough 2015” as are Re?my Cointreau and Kweichow Moutai. “Re-shoring” of luxury is accelerating as China cuts duties on luxury goods imported through official channels, and cracks down on “daigou” (overseas personal shoppers unofficially bringing back grey-market goods). This dovetails with our channel checks that show better sales domestically, but weakness in places that cater to daigou, like Hong Kong.

We were correct in foreseeing that the weaker RMB and lower equity valuations would fuel M&A. The demand to acquire good companies we control is positively impacting our portfolio, although the weaker currency has led to outflows for China-focused fund managers, and macroeconomic concerns for investors globally. We expect the currency will continue to experience a managed decline, and that it is the volatility, not the absolute level, of the RMB that most concerns policy makers. The market will grudgingly conclude that China has the growth, reserves, policy tools and force of will to bring the RMB in line with fundamentals while avoiding overshooting to the downside.

We also called the narrowing of the valuation gap between domestically listed A-Shares and Hong Kong-listed H-Shares, especially in the consumer sector, although our belief that this would be fueled by a rebound in the valuations of H-Share consumer stocks, which traded sideways, was a bit off. For the coming year, we anticipate that the stock-connect, which provides domestic Chinese investors access to reasonably-valued Hong Kong listed companies and, indirectly, foreign currency exposure, will become too tempting to resist and offer reasonably priced yield, versus the very expensive growth on offer elsewhere.

We overstated the risk that businesses and startups in China “losing more to sell more” would rattle investor confidence. Enough unicorns were minted to prove us wrong. Going into the New Year, we still see an overabundance of capital searching for a home, especially in early-stage venture-land. Growth is overvalued, but expect nonsensical start-up valuations and the general dodginess in industries like peer-to-peer lending to persist for a while longer. Domestic equity valuations will also remain high. While the local markets are imperfect, the trend toward higher quality listings, better regulations, greater institutional participation and more overseas involvement combined with China’s extremely high domestic savings rate will keep valuations robust.

Priorities
Finally, we would like to recap our priorities for 2017:

First, we will continue making distributions and complete further closings for the exits we commenced in 2016. We believe we can do this while ensuring that these companies continue to grow.

Second, we aim to sell down our last two remaining investments in LCP-II, our vintage 2008 fund. To this end, we are off to a good start in 2017.

Third, we will optimize our remaining investments in LCP-III to achieve higher valuations, generate distributions and achieve industry-leading returns.

Fourth, we are taking advantage of the platforms we currently own to invest more capital, with a target of exceeding the $100 million we committed last year into further snack foods, sauces and baby/kids-related businesses and one new platform.

Fifth, we continue to build Lunar’s franchise and reputation.

From LPs looking for realizations from GPs as well as paper gains, to the factors contributing to more buyout opportunities in China, industry participants give their perspectives on the year to come:
BRIAN LIM, PARTNER AT PANTHEON, ON THE LP PERSPECTIVE:
Sentiment has been more subdued on Asia. You will see some fundraising noise that comes through from the timing of some large funds coming to the market, so maybe the figure to focus on is the average over two or three years. But even allowing for that, fundraising is probably down.
There is also a theme of consolidation of GP relationships by many LPs. This has benefited some of the larger funds that are able to raise more money, but some smaller managers are feeling the negative impact of that consolidation. You will see continue to see some oversubscribed funds in the mid-market space, but by and large, the days when you would be able to command a strong fundraise as a new face on the block or as a re-up without much in terms of realizations are past. LPs are more demanding in what they are looking for. Your DPI [distributions to paid-in] matters; your ability to justify your fund size over and above what you raised last time matters.
Regarding China specifically, there are some issues at the political and economic level, but there remains a fair amount of optimism. As long as managers are able to command capital this is quite a good investing environment – there is less competition and more time to conduct due diligence.
I also see some optimism in India, despite the recent demonetization efforts. Fewer firms are able to raise capital, particularly if you strip out VC, but pockets of capital have been raised locally. There is increased realism as to what it is practical to expect of foreign institutional investors, so if managers can rely on local investors to get going that is a sensible strategy.
Australia and Korea will hopefully both continue to be steady, and Japan continues to defy expectations and perform well despite a difficult backdrop in terms of macroeconomics and demographics. This could well be Japan's year in terms of private equity fundraising, because a number of firms are coming to market at the same time.
RICHARD FOLSOM, CO-FOUNDER OF ADVANTAGE PARTNERS, ON JAPAN:
The pace of deployment has continued on an upward trend, especially in the small to mid-market deal space, and we see signs of that continuing to be robust going into 2017. The pipeline will continue to be driven largely by founder-owner succession deals and some corporate spin-offs.
One thing we see going forward is that succession deals will be coming not only from ageing founder-owners but also those from in their late-30s to mid-40s as they realize the merits of working with private equity firms based on word of mouth and what they're seeing in the market. That's a change in perception that has accelerated over the last year or so and will be driving deals in the future.
Corporate divestments are a bit more cyclical in nature and I think we're at a point in the cycle now where Japanese companies are feeling more pressure to divest and focus on shareholder value. Additive to that, improvements in corporate governance initiated over the past year that make it easier for private equity to participate in larger deals are beginning to take effect with these companies.
We are seeing appetite and opportunity to sell to Japanese strategics in 2017 and foreign companies will begin to take on a role as buyers as well. There are different angles to achieve double-digit growth in Japan, so private equity will focus more on creating value with differentiated products, bolt-on acquisitions and helping companies go overseas.
WONPYO CHOI, PARTNER AT BAIN & COMPANY, ON KOREA:
From next year, it will be a much more challenging environment for private equity in Korea, even for deals over $1 billion, because the spectrum of competition is going global and even the smaller funds will be able to source additional money from LPs through co-investment. LPs, who have witnessed a number of high-return mid- to large-cap deals in Korea, are pushing the global funds to build up their teams in the country and secure more deals.
For the next 3-6 months, the current political instability may have a negative impact on private equity markets because it's not just about politics – it relates to concerns that Korean conglomerates may be accused [of improper conduct], which could delay the important decisions such as portfolio adjustment or M&As.
However, I still think deal flow will be strong for the next 18-24 months because there will be activity in the distress market. There will also be a lot of secondary deals because many PE portfolio companies are mature.
In addition, there are still a number of mid-cap companies that need support for globalization on top of growth capital. PE funds will continue to have a preference for consumer and retail despite the potential macro headwinds, but there are some contrarian views that they could actually be more active in industrial sectors due to cheaper prices. More investors could turn companies in those sectors around with creative deal structures, drive consolidations, or shoot for an industry cycle play.
The issue will be exits because domestic strategic investors are quite selective regarding local deals and pursue cross-border opportunities more actively. We have also never seen any IPOs for majority-owned PE portfolio companies and we've had some political impasses between China and Korea making it hard for Chinese strategics to do deals in Korea. Unless we resolve the political issues with China and the stock exchange allows companies majority owned by PE to go public, it is likely exit activity will face challenges in 2017.
DAVID PIERCE, HEAD OF ASIA AT HQ CAPITAL, ON EVOLVING LP ATTITUDES:
The thing that has struck me most in the last year or two has been the mood swing of many international investors. Those of us within the region continue to believe that Asia represents a very interesting place to invest private equity capital, if done intelligently, but globally the mood seems to have swung broadly against the region as an investment destination. The perhaps excessive enthusiasm of a few years ago has gone away and been replaced by excessive pessimism.
Of course, this can actually create some interesting opportunities, because reduced capital inflows can also reduced competition for deals, potentially making entry valuations more attractive. But the pessimism makes it very challenging for GPs to raise money, especially those still trying to prove themselves.
For the last year or so now, managers seeing fundraising success are those that have proven an ability to get money back to their investors. An attractive TVPI [total value to paid in] alone is not sufficient. Investors want to see distributions, an area in which Asian funds have lagged peers in Europe and North America. So we've seen some of the bigger Asian GPs do really well with fundraising, because they tended to invest more in the buyout space where they can control the timing of exits, or in larger deals where they could get listings on exchanges or do some other form of recapitalization and get money back.
On the other hand, for many GPs managing smaller funds, while the portfolios may look good, fundraising has been very challenging because of the inability to show that they can actually realize returns. I think that's likely to continue to be the case in 2017.
Another development worth noting is the growth of the secondary market in Asia. Many of the funds that were raised in the mid to late 2000s are coming to the end of their lives, and they need to find solutions to their exit problems. So the secondary market is increasingly a way to get liquidity for investors or, in some cases, give new life to a GP by recapitalizing a fund or using other techniques to permit pursuit of a promising investment course.
CAMERON BLANKS, MANAGING DIRECTOR AT PACIFIC EQUITY PARTNERS, ON AUSTRALIA:
The Australian private equity market is very stable with a consistent set of competitors, and the economy is heading into its 27th year of continual growth. We therefore don't really see a lot of change happening over the next 12-24 months in terms of dynamics or conditions.
There's a A$2.1 trillion ($1.57 trillion) pool of capital in the Australian superannuation space that continues to grow at a faster pace than the economy, so there's no doubt that investors at a macro level will be seeking to invest that. But I don't think it's going to lead to an oversupply of capital in the local market because a lot of it will be invested offshore. The superannuation funds also invest lower percentages of their funds into PE compared to global benchmarks, and I don't see that changing in the near term either.
One theme that is coming out in Australia, however, is exports of services, which has now overtaken exports of iron ore. We expect that trend to continue, especially in the education sector, which is set to grow off Asian demand. Australia is now said to be exporting more education services than the UK or Canada. New Zealand will have a similar services dynamic with probably more of a focus on food businesses and agriculture.
There has also been a good appetite in the Australian market for services-related businesses to go public. We've seen a strong IPO pipeline since late 2013, but it has tightened up recently so it will be interesting to see how that goes in the first quarter next year. That will depend on what happens in the US and economies around the world in terms of investor appetite.
KARTHIK REDDY, MANAGING PARTNER AT BLUME VENTURES, ON INDIA VC:
One trendline is about definitely watching the leading start-ups – the Flipkarts and Olas of the world. In 2014, 2015, and to some extent in 2016, they were also the forerunners for M&A and aggregation and consolidation in this space, and if they're not strong aggregators, then what happens is M&A dies down a bit. And so it's not only the companies themselves to watch out for, but also the lead indicators on M&A activity and late stage investors coming into India. A lot of people have money invested into those companies that they cannot afford to lose. It may swing momentum away at late stage if that happens.
The contrarian trend to that is there's a lot of early stage capital with resident managers in India, whether that's Accel Partners, Nexus Venture Partners or even early-stage funds and angels, but it's far more tentative when it comes to what gets backed. The good news is that models that are more robust, that have more traction, are getting recognized and funded. India-centric or unique-to-India models got a bit of a rough ride from investors in my view, but that is changing dramatically in favor of those companies. Some sectors that we like or we've bet on already are going to get a huge uptick in the next 12 months: healthcare, financial services, education, small business technology, small business enablers, B2B enterprise and software-as-a-service (SAAS).
A lot has yet to be seen in terms of what impact demonetization has on the overall economy. I don't think it's all positive. It's going to hit discretionary spending, and it's going to slow down the economy for the first six months of the year. The full impact will roll out early in the first half of next year. And compounded with that is all the policy uncertainty. I think the government does realize that they have made mistakes in the short term, and to fix that they'll have to throw a whole lot at one layer or the other. So whether it's to facilitate trade, or to boost consumer spending, some of that is going to happen.
If start-ups are able to survive through the next year, my belief is that the end behavior, whether that's in six months or five years, should benefit new age start-ups, because a lot of the frictionless transactional activity, whether it's goods or services, is bound to move online. And anything that piggybacks the mobile internet economy is likely to benefit, if they've executed it well. So apart from payment start-ups and financial services, once you've taken a lot of cash and pushed it through the formal banking system, consumers become savvy enough to operate their cash flows digitally, and the digital service offering suddenly becomes far more viable.
DMITRY LEVIT, FOUNDER & GENERAL PARTNER AT DMP, ON SOUTHEAST ASIA VC:
Some business environment factors in Southeast Asia, such as internet connectivity, are quick to change, while others take longer. One important missing element of a healthy digital ecosystem is a stock exchange capable of providing liquidity for technology companies. Before this becomes a reality, an entire generation of equity analysts, traders and investors will have to be educated. Other important factors such as a culture of risk-taking, access to a deep pool of technical talent and availability of experienced mentors are noticeably changing, but likely have further to go.
In terms of investment sectors, although VC enthusiasm for Southeast Asia's e-commerce market – Indonesia's in particular – has subsided somewhat following an intense period of interest, an interesting group of businesses has emerged in its wake. These are the back-end infrastructure systems necessary to support e-commerce operations, such as last-mile logistics, advertising and affiliate technologies, and digital payments.
Certain industries succumb to the hype generated by the global tech ecosystem. In my opinion, financial technology is one area where the current buzz exceeds substance. While there is much talk of disrupting banks and insurers, I find that start-ups whose initial role is to support, rather than replace, financial institutions' processes are more successful in establishing a beachhead from which to advance. Separate from the buzzy fintech space is digital payments, which has been developing nicely in the past couple of years, and where I think we will see some consolidation.
Overseas investors, who deploy the majority of capital into Southeast Asia's tech companies, will continue to have a major influence over events in 2017. For example, we are seeing a resurgence of interest from mainland Chinese investors in certain markets – Indonesia and Singapore feature most prominently, but increasingly also Thailand and Vietnam. This may be why, after almost a decade out in the cold, the amount of buzz around Vietnam's tech ecosystem has risen again.
MARCIA ELLIS, PARTNER AT MORRISON & FOERSTER, ON CHINA:
Over the last year, PE funds that I represent have become very interested in working with Chinese corporates to do outbound investments. And with the recent curb on outbound investment (not formally announced but widely reported), there is certainly doubt at least for the first half of 2017 as to what is going to happen with that flow of investment money offshore.
Some of the funds that I represent are actually seeing this as a potential opportunity for them: Because they have offshore cash available, they can provide a bridge for Chinese companies that are trying to do investments but can't get their cash out. If you figure that eventually the tap is going to be opened again and cash will be able to leave China, then if you are an offshore fund you can make money off of financing those offshore investments in the interim. Many of my fund clients are also focusing on the China NPL [non-performing loan] market, acquiring portfolios of loans and investing in companies that work with Chinese NPLs.
I think that a lot of people are finding other sorts of exits besides IPOs. There are always secondary sales to other funds. There are also a lot of people looking to consolidate businesses in certain sectors like education and healthcare, and often you can just sell your asset to somebody else who is consolidating. We've assisted a number of PE sellers in sales to strategics. In the past, maybe people would have held out and tried to do an IPO, but now they're saying, ‘Let's go ahead and sell this to a strategic.” Often the multiples are actually quite high. People are rethinking IPOs, which are really expensive to complete, assuming you are able to complete them. Indeed, when you look at the returns and factor in the cost and the time it takes to do an IPO – plus the time it will take the fund to sell its shares post IPO – sometimes an IPO is just not the optimal exit.
On the fundraising side, we still see LPs very willing to commit to China-focused funds. I think you're going to have a period with people pausing to sort out between the types of China-focused funds they will invest in and the types of funds they won't. The Chinese economy is slowing, so you can't just invest in a fund if its only strategy is to bet on growth. You need confidence that the people at the fund have real ideas and can figure out an investment strategy that really works.
DEREK SULGER, PARTNER AT LUNAR CAPITAL, ON CHINA BUYOUT STRATEGIES:
Domestic consumption will continue to steadily rise – it started out weak in 2016 but ended the year very strong. You'll see that reflected in funds like ours that focus on what people eat, drink and wear. When I think of consumer I think of the mass market premium brands – it's the products and services that people are buying. I really think we will see the most success in that area, which means that strategies oriented around the consumer, mass market, and tangible qualities will continue to see good growth.
We feel very strongly that what we're doing will remain a sweet spot in terms of attractive entry valuations, less competition, and most importantly, the greatest opportunity to add value. You're still going to see enormous opportunity, especially in areas like consumer, to buy established businesses with a strong pedigree and a strong track record, and bring them into the modern age. If you're a younger entrepreneur, and you're at an early stage of running and building your business, you may not see much value-add from private equity. You also may not want to sell your business, and if you need to raise money, you might solicit PE investors but probably as little as possible. So these opportunities are difficult for growth capital to invest in, and those founders are probably not likely to do something even with a buyout firm.
But if you look from a big-picture perspective, there are approximately 12 million mid-size companies in China. And the average age of the established mid-market companies is older, as they were typically started in the 1980s and 1990s, and are now approaching 20 or 30 years of operational and brand history. A lot of those businesses are run by people who are thinking about what's next for their company, beyond their own lifespan, and certainly beyond their tenure as CEO and founder. To the extent there will be competition, it's going to come from domestic Chinese companies rather than from other private equity firms, but they'll focus a little more on the larger and slightly more mature end of the sector.
Increased competition is narrowing the upside in minority growth transactions. This is not necessarily driven by other private equity firms, because there hasn't been that much capital raised, but from from increasingly-developed, deeper, more robust capital markets that are better positioned now to provide meaningful financing. A well-run company looking to raise money, can now get it at very reasonable prices. You don't have to give an arm and a leg to a growth capital fund like you had to five or ten years ago. That investment approach will be challenged, and I don't see the trend reversing any time soon.
 

As we enter the year-end holiday season, the world’s two largest economies will generate tremendous levels of shopping both online and offline, bringing the sheer scale of China’s consumer growth into sharper focus.

Double 11 – The online Chinese consumer is as healthy as ever
Sales during November’s “Double 11” promotion reached 120.7bn yuan, or US$18bn, up 32% YoY. Chinese shoppers were enticed to build their shopping carts early, and in return were promised discounts and lightning-fast delivery. The first Double 11 order on TMall was received 13 minutes after the purchase was processed online.
In the USA, an impressive US $3.34bn was sold during Black Friday, with Cyber Monday generating US$3.45bn in sales. Together they total less than 40% of what Double 11 achieved in a single day. Again – less than 40%. Moreover, 80% of Chinese purchases were made via mobile phones, compared to approximately 32% for US consumers.
We believe these numbers will continue to rise, even from such a staggeringly large base. China and the United States are both consumer societies and we are seeing Chinese express individually, spend savings and seek out a better life through shopping. China also has room to grow by tapping into less urbanized and rural customers. During our recent AGM, Alibaba executives discussed their plans to bring an additional 500 million rural Chinese online through mobile phones, regional drop-centers and better logistics. Page 3 Confidential

Lunar brands performed in all categories
Our Yeehoo babywear was the clear market leader with sales of more than RMB150m. Yeehoo staffed more than 1,150 workers across three 8-hour shifts to ensure that orders were fulfilled and customer satisfaction remained high. Our snack food businesses, Yonghong and Yao Taitai, also showed strong growth, showing that strong traditional brands can tap online channels for new growth.

The uplift from e-commerce and the strengthening economy overall should make for a strong year end. The middle class continues to rise, consumption grows, policies are favorable and a weakening RMB probably is having a stimulative effect.

We look forward to updating you in more detail at year-end.
 

2016年8月18-19日，2016股权交易商大会在黑龙江省齐齐哈尔市成功举办。云月投资合伙人、中国/北京股权投资基金协会执行副会长宋斌应邀出席，并与全国政协委员、中央财经大学证券期货研究所所长贺强先生，分别以《企业投融资难题破解》和《中国多层次资本市场发展》为主题发表演讲。

宋斌表示，振兴东北老工业基地，应以绿色发展为核心布局产业，以政府国资为杠杆引导民企，放手支持产融结合。中观层面的区域经济发展，应善于以城市为载体聚焦资源，通过市场机制筛选优势产业，重点培育差异化的领先企业，让产业和企业插上资本市场的翅膀，带动整个产业链的发展，避免由于堆钱式的同质竞争，造成一拥而上一哄而散。宋斌指出，健康通畅的企业融资是产业发展的基础，当前股权投资行业面临变局，鱼龙混杂信用透支严重，搭车造富神话已经破灭，企业期盼产业金融联动，因此需要按照中央和国务院要求，遵循法制化、市场化、专业化三项原则，放手支持股权投资行业做优做强。宋斌强调，从云月投资成功经验中可以得到的重要启示，作为成熟专业的投资机构，长期专注专攻细分领域，运用独特的专业知识、专业实力和深入运营能力，融汇资智资源提升业绩，同心实力有效支持企业发展，可以有效地为社会、产业和投资者创造真实价值。宋斌呼吁，国资机构作为LP出资，投入市场需要专业可靠的PE机构，有助于通过资本杠杆提振民间信心，加大向民企投资激发市场活力。同时国家实行风险补偿鼓励投资的基金减税政策，有利于形成藏富于民的市场红利，实现国资民资收益持续共赢格局。

中央统战部原副部长、全国工商联原党组书记胡德平，中国普惠金融联席会会长、国家开发银行原副行长刘克崮，国家粮食局原局长、中国市场学会理事长高铁生，中国证监会上市公司协会党委书记、副会长姚峰，国家发改委宏观经济研究院原院长助理、中国投资协会股权和创业投资委员会常务副会长沈志群，科技部资源配置与管理司副巡视员邓天佐、国务院国资委企业改革局原副局长、中国企业改革研究会副会长周放生，黑龙江省人大常委会副主任陈述涛，政协副主席洪袁舒，政府副秘书长赵万山，金融办主任郎国明，工信委副主任方安儒，齐齐哈尔市委书记孙珅，市长李玉刚，政协主席张贵海，常务副市长王志鹏，政府秘书长金伟等专家领导，以及近五百名政府部门、企业界、金融界嘉宾和专业人士出席大会。

云月投资合伙人宋斌在2016股权交易商大会上的讲话

感谢黑龙江省和齐齐哈尔市领导的热情邀请，也感谢沈会长和秘书长的周到安排，很高兴来到风光美丽的鹤城。各位嘉宾不远千里而来，共同探讨如何破解企业融资难的问题。大家都知道，专业尽责的股权投资机构，不仅是企业家的好朋友好伙伴，也是政府发展经济的好参谋好助手，也有责任满足大家带着问题来带着答案回的愿望。我们今天的股权投资行业与交易市场，面临的是什么新情况、新问题、新机遇呢？这要从不同的历史角度和现实立场来看。

首先站在行业发展的角度看。我为之打义工的中国股权投资基金协会，是最早设立的服务于PE投资机构的行业组织之一，与北京市政府批准成立的北京股权投资基金协会，两块牌子一套人马，会员遍布全国，在中国股权投资行业兴起过程中，起到很大的、重要的、难得的启蒙、宣传和引导作用。最近我到各地走了一圈，见到许多行业的老人，在上海还与吴晓灵行长，回忆邵秉仁会长在她的帮助下，筹备成立协会的往事，大家都是记忆犹新。站在协会组织看行业发展，中国的股权投资行业，这些年来由无到有，由小到大，由少到多，由新到乱。全民PE，泥沙俱下。野蛮成长，鱼龙混杂。我们协会，包括创投委，成立若干年，加起来会员也不过千八百。然而近两年一下子就冒出上万个号称是做PE的机构，假冒伪劣的出现，不仅扰乱行业的发展，更是透支、破坏了市场的信任，因此如何拨乱反正是摆在行业面前的大问题。

站在我所服务的云月投资Lunar Capital角度看，也是站在股权投资机构个体实践的立场看，中国的股权投资行业，随着中国经济形势与环境进入新常态，也确实到了需要脱胎换骨的时候。云月投资是一家国内外知名的并购基金，长期专注于大消费行业的控股投资，业内所讲的“云月模式”，就是云月的专注细分领域投资业绩与深入运营成功经验的总结。我们在与企业家和投资者合作与沟通过程中，发现他们的需求、追求与要求，与前些年发生了很大的变化。企业家盼望来的是拉车的投资人，拒绝搭便车的投机者。投资者不再相信神话，逐步真正理解和接受风险与收益匹配的投资逻辑。如何恢复和展示整个行业的诚实、可靠、专业、价值创造的特质，正是有责任有担当的PE机构当务之急。

由于长期在综合经济管理部门和企业、金融机构工作，对地方政府和国有企业运作也久为关心了解。站在政府的参谋助手这个角度看，如何在经济下行压力加大，预算制度改革深化，市场机制不够充分的情况下，科学理智地用好金融工具和手段，是一个需要系统思考和运作的事情。所担心的是地区间堆钱式的同质化竞争，一拥而上，一哄而散，表面文章，不见实效，一锤子买卖，最终难以为继。虽然上面讲的是三个问题，但是相互关联的，实际上是一个问题的不同方面。

我们今天在省域、市域，在一个行政区域讨论金融问题，需要更加务实有针对性的讨论，需要从中观来展开，找到具有可行性的解决之道。站在区域经济发展角度，认识两个三角关系很有必要：第一个三角是产业、市场与资源，核心是产业。发展区域优势产业需要立足本地区特点，与特定对应的市场结合，与特色明显的资源结合。第二个三角是企业、城市和政府，企业是主体，城市是载体，政府是托底，核心是培育行业领先的企业。两个三角放在一起，它们相互的关系，归纳起来一句话：政府遵循市场化原则，以城市为载体，组织调动综合资源，培育相对优势产业的领先企业群。这句话代表的是战略导向和选择。在这句话上要加上一个杠杆，就是支持产业和企业发展的金融，也就是大家耳熟能详的产融结合，创新的、复合的、系统化的产融结合。

这里所讲的金融杠杆，涉及到市场、工具和机构三个方面：第一是需要三个市场，一是债券市场，二是股票市场，三是权益市场。第二是对应三个工具，一是贷款，包括金融租赁等类似信贷；二是公募，主要是公开发行的股票和公司债、企业债；三是私募。私募除股权、产权外，还可包括知识产权、土地流转权等。第三是配套三种机构，一是商业银行，二是投资银行，三是PE/VC。区别在于，前二者是金融服务，后者是金融投资。

在当今形势下，最大程度发挥金融投资的作用更为重要，这是因为在实践中具有试金石一般的独特作用。举个例子，各级政府所面对的长期无解的难题，就是中小企业及小微企业，融资难融资贵。实际上这个难与贵是正常状况，如果处于弱势地位的中小企业，融资不难不贵了，整个金融的价值机制也就扭曲了。企业融资难，单纯靠行政命令金融投资，牛不喝水硬按头，不是好办法，也做不到。这是因为企业有生有死是常态，没有人能够解决所有中小企业的生存问题。而职工的生活问题，是政府的责任，不是资本的责任，更不是金融机构的责任。政府的目标是通过支持更多好的中小企业发展，创造更多的就业与税收。金融的功能就是支持有潜力的好的优质中小企业，如此资本与企业双赢，可以同甘。而对于经营不善、市场不认可、金融不支持的企业，政府负责托底保人，不必共苦。这里的关键在于，不论是金融，还是政府，他的功能都应是造血机制，而不是向企业输血。

在产融结合过程中，PE机构应该是一支象特种兵似的特殊力量，我们称之为金融产业家。他具备识别好的企业的眼力，帮助难的企业的能力，以差异化的优势，独特的资源，开展创意、创新、创造性的工作。樱桃好吃树难栽，不下苦功花不开，PE就应是有独特专业能力的育苗栽树人，是企业欢迎的拉车老黄牛。

讲实干办实事，政府的导向作用非常重要。从政府所能调动的资源看，国资国企是当前一张非常重要的经济牌。单纯走国企引进民资的路子，与中央提出的拉动民间投资方向未必对头。应该是通过打破行业产业的玻璃门、弹簧门、旋转门，打破垄断来解决两种资本的融合问题。政府的目标是激发经济的活力，如何发挥民企的优势和专长，引导和鼓励民间投资，是个大问题。不应只是鼓励民间投资国企，而应更多是国资投入民企，请注意不是国企直接投资民企，而是以基金的形式，包括母子基金，用资金杠杆，遵循市场机制，发挥资本效用，参与优秀民企发展，同时这也就是支持行业发展。最近国务院国资委下属的国新、招商、诚通等央企，正在设立千亿级规模的基金，就是一个好的尝试。这些事情都需要用市场来配置，不论是有形与无形的、有边界与无边界的市场，特别是资本市场，必须要走法制化、市场化、专业化的道路。法制化是基础，市场化是条件，专业化保障。最近国内企业海外并购成为热门话题，实质上不少只是简单的以财易物而已，更多是为了注水充门面，为的是支持股价。企业并购的标准与PE投资的逻辑应该是一样的，就是产业是否领先，国力能否增强，价值能否提升，这是专业化的金标准要求。另一方面，环境条件是否净化，产品质量是否改善，人民生活体验是否提高，投资者收益是否丰厚，这是对大消费时代金融投资的市场化考验。

综上所述，政府支持产融结合，还有两件事可大有作为：一是城市建设与产业发展配套，需求资金量大，既需考虑长远，还须抓住当前。因此地方政府可以走资产证券化的道路，通过交易市场打包引资，对象既包括并购型基金，也包括大型产业集团，但目标是盯住细分产业龙头企业，形成当地优势企业群。二是中央政府减税，藏富于民，藏富于企业，利在千秋，势在必行。全面减税条件还不太具备，但对PE机构和基金收益的减税，一方面是某种风险补偿，鼓励投资与成功，另一方面也是利用两层杠杆，拉动民间投资，推动经济前行，而且证券市场已有先例，中央容易下决心，也容易操作。企业自身则要融资融智融资源，争取得到优秀股权投资机构的专业帮助，改进管理提升业绩，更好地插上资本市场的翅膀腾飞。

随着城市化的发展以及人均消费水平的不断增长，正在崛起的中产阶级将对中国未来的经济产生深远的影响。根据麦肯锡的调查报告，中国15-59岁的工作人群预计将在未来的15年中增加1亿人左右，同时带动本土消费从2.5万亿提升至6.7万亿。这些消费者对自己未来收入增长非常乐观，并越来越追求高质量的生活方式。

这样的趋势对于中国消费行业的未来意义重大。我们也看到婴童服装行业由中国“第三次婴儿潮回声期”以及计划生育新政带来的积极影响。年轻夫妇们越来越多地开始二胎计划，每年新增的新生婴儿预计将达到150万到400万左右。更多新生婴儿以及更加富有的父母对我们旗下的英氏，皮卡泡泡，I Pinco Pallino等品牌意味着更大的销售潜力。

中国未来新生儿的潜在需求吸引了许多国外品牌，例如在服装、玩具、书刊及教育等各方面都有所建树的迪士尼。同时，本土品牌也在加紧加强自己的产品及品牌建设，以巩固并拓展在婴童市场内的地位。婴童市场也吸引了资本市场的目光 – 从网上母婴产品零售商到儿童动画电影制作商都得到了资本的青睐。

婴童服装是婴童消费产业的中心，与玩具，尿布，食品一起占据了近50%的婴童消费市场。根据中国儿童产业研究中心的预测，婴童消费产业未来将获得15%的年复合增长率，其中婴童服装市场规模将从2013年的1160亿人民币增长到2018年的2000亿人民币。

为了吸引更多消费者并把握住大趋势带来的商机，婴童品牌必须致力于改进产品设计、质量和安全问题，因为中国消费者对于产品功能，品牌形象和安全比对于价格更为敏感，愿意支付更高的价格以获得更加安全可靠的产品。另外，企业也必须完善线上线下的分销渠道，让家长们更为方便地为自己的孩子们购买产品。对于英氏和I Pinco Pallino这样拥有高质量产品和强大分销渠道的品牌，中国新一轮的婴儿潮将为它们带来可非常可观的可持续发展机会。

在致力于将经济重心由出口及制造业转移之际，中国仍然保持着不断提高的可支配收入及较低的失业率，使人们对于消费业的增长前景越来越乐观。中国超过2亿中产阶级正在逐渐开始追求高端的产品，以及以健康、家庭和社交为核心的生活方式。

为改善生活质量而消费

麦肯锡最近的消费者信心调查显示55%的中国人相信他们的收入在未来五年内将得到明显的增长，而美国和英国数据仅32%和30%。同时，中国人的生活压力也由于购房等原因变得越来越大。

由清华大学发起的一项调查证明了中国人正在承受巨大的生活压力 – 88%的受访者认为自己“十分疲惫”，53%对自己的精神和身体健康不满意。另外，60%的白领认为自己的压力大多来自于购房以及还贷。

因此，中产阶级愈发关注身心健康，关注优质的产品和服务，以及营养均衡的饮食。尽管西式快餐过去在中国市场有着非常强劲的增长，今年来却逐渐下滑，因为消费者已经开始意识到“垃圾食品”所带来的危害。同时，传统碳酸饮料也正在遭受来自各种果汁产品的冲击。

营养与保健食品“十二五”发展规划正式出台，标志着政府也已经意识到民众健康意识的觉醒。著名市场调研公司英敏特预计维他命与营养补品市场将于2017年达到53亿美元，超出10年前的两倍。市场趋势促使越来越多的食品企业开始研究如何吸引关注健康的消费群体。在我们的旗下企业中，姚太太和永红都在推出健康概念的新产品以满足消费者的需求。

边购物边享受家庭时光

尽管中国已经超越美国成为世界最大的电商市场，实体店仍然是顾客消费体验不可或缺的一部分。购物休闲体验（retailtainment）成为了中国越来越重要的概念。2/3的消费者认为外出用餐和购物是与家庭共度美好时光的最好方式之一。因此，那些集购物、餐饮和娱乐为一体的购物中心成为了这种趋势的最大受益者。

奖励计划提升顾客忠诚度

越来越多的中国消费者开始只关注少数几个自己熟悉并欣赏的品牌，并体现出对顾客奖励计划的重视。因此，顾客奖励计划成为了解决中国消费者忠诚度问题的重要途径。另一方面，为了得到更高的顾客转化率，这种趋势也会在短期内为企业带来较大的营销成本。在云月的旗下企业中，小星辰品牌集团是最早推出品牌忠诚度计划并建立VIP顾客数据库的企业之一。通过这些措施，我们可以根据顾客的具体情况有针对性地进行产品推广。

总之，我们相信中国消费行业的前景。旗下企业优化运营的潜力、顾客消费习惯的变化以及中国消费者对生活品质越来越高的要求对于我们来说意味着未来几年内巨大的机会。