How to generate alpha in Chinese private equity: An interview with Nexus Point founder KC Kung

KC KUNG explains why the time is ripe for control investments in China.

Underpinned by decades of stellar economic growth, China’s private equity (PE) market has rapidly expanded to become the third-largest in the world, with more than $620 billion in assets under management (AUM) in 2019.

Even before the COVID-19 crisis struck in January, China’s moderating economic growth and an uncertain regulatory environment had sharpened the competitive landscape, tightening margins and reducing returns.

It is a scenario that KC Kung believes is ripe for control investments. Kung is a top dealmaker in China’s PE industry, having led Carlyle Group’s Greater China business before co-founding MBK Partners, one of Asia’s largest private equity funds, which today has over $20 billion in capital under management.

In early 2017, Kung stepped aside to launch Nexus Point, a firm focusing on control investments in Greater China.

Speaking with Ivo Naumann, a Shanghai-based partner who heads McKinsey’s private equity practice in Greater China, and Wouter Baan, an associate partner in Hong Kong, Kung explains how economic conditions are spurring entrepreneurs to cede control, what PE managers need to do to generate alpha in China, and why attracting and retaining top talent is key to consistently creating value.