Exclusive Interview With Yao Binchao, Director Of Ardian Greater China, The "Big Project" Strategy Of The World'S Largest PE Two Tier Market Fund

In May, PE giant Ardian completed the eighth phase PE two market fund raising, which amounted to 19 billion US dollars.

The predecessor of Ardian is the private investment platform of AXA insurance. After its spin off in 2013, it became an independent PE investment platform. Today, the agency has become one of the largest and diversified private equity institutions in the European market with the management scale of $96 billion and the five largest asset management businesses (parent funds, direct investment funds, infrastructure, real estate and private debt).

Unlike Blackstone, Caire, KKR and other PE players, the biggest business segment of Ardian is the parent fund business. The PE two level market fund, which is the total size of US $19 billion, has set the highest level of fund-raising for the global PE two level market fund.

"More and more international LP can more skillfully connect with the buyers of the two tier market. The number of buyers is increasing and investment strategies are diversified. Yao Binchao, director and managing director of Ardian Greater China, told the twenty-first Century business reporter.

Yao Binchao joined Ardian in 2011 and later led the establishment of Ardian China office.

Since 2019, Sino US trade friction has increased the concern of global institutional investors in reducing the allocation of funds in the Chinese market. The new crown pneumonia epidemic has increased the uncertainty of the new fund raising, and what impact will be brought to the US dollar fund collection in the Chinese market.

"We did not see that sellers in the United States concentrated on the sale of Chinese funds. China is the second largest economy in the world. If we give up the layout in China, it will be an unbearable loss for them. Instead, many of them are studying how to configure China based on better strategies. " Yao Binchao observed.

PE two market era

PE two tier market funds usually enter the maturity stage of the fund, plus the ability to purchase assets at a certain discount, so theoretically, they can get higher returns in shorter cycles.

According to the statistics of Preqin, the annual scale of the global PE two market has increased from US $26 billion in 2013 to US $75 billion in 2018. The scale and quantity of new fund raising have also been increasing. In 2018, 39 PE two level market funds completed 29 billion 800 million US dollars in capital raising.

The start of Ardian's PE two tier market business goes back to 1999.

The first phase PE two market fund raised in this year was only 220 million US dollars. After that, its team basically raised the fund's rhythm every three years or so, and the management scale of each fund also increased year by year. Since the sixth phase of the fund in 2013, the single fund management scale of Ardian PE two level market business has exceeded ten billion US dollars.

Vincent Ganbo, executive director of the Ardian Executive Committee and director of Ardian Fund of Funds (Vincent Gombault), said, "under the current circumstances, the two tier market plays a crucial role in providing liquidity to institutional investors. It is now a mature market, and the importance of private equity investors will only increase in the next few years.

Yao Binchao accepted the twenty-first Century economic report reporter's interview, Ardian's core strategy can be summed up as a bigger project. The "big" here includes not only the amount of investment alone, but also the complexity of transactions, and the one-stop service for LP of large organizations.

From past transactions, the main partners of Ardian are LP, such as insurance institutions, pension funds, sovereign funds and so on. The average size of the single transaction is more than 1 billion dollars, and there are dozens of assets and fewer shares of hundreds of funds.

As Ardian's model effect on big projects is highlighted, there will be a possible plan for the seller to communicate with the team one or two years ahead of schedule, and an intermediary will take the lead in the "Ardian project".

"Big project" strategy dismantling

Tracing back to the source, Ardian's strategic choice in the PE two tier market business is related to its team genes and the history of equity investment in the European and American markets.

The predecessor of Ardian, AXA Private Equity, was a direct investment business at the beginning of its establishment. The investment stage included mergers and acquisitions and growth investments. Three years later, Dominique Senequier, head of AXA Private Equity, expanded its business to the asset class of the parent fund, and at the same time launched an investment of tier 1 and two tier funds.

Direct investment fund business includes mergers and acquisitions, expansion and growth stages. Investment transactions are mainly concentrated in France, Italy, Germany, Britain and other European regions. The parent fund business is relatively more global and has been working with global fund management teams through first tier fund investment, two tier fund investment and joint investment.

"The size of the fund now allows us to do special projects, which are less competitive and can provide more services to partners." Yao Binchao said, the seller's demands are diversified, and there are many possibilities for external industry regulation, internal strategy adjustment, quick access to revenue, and business team divestiture.

In addition to price, Ardian needs to provide the partners with the most comprehensive solutions, and achieve win-win results with them in many aspects, such as internal process, external transition, and revenue realization.

Looking back at the development of the PE two level market in the past 20 years, after the Internet bubble, the investors withdrew from the private equity fund, the liquidity demand of the investors increased after the financial crisis, and the banks stripped the private equity sector, which became the time window for the Ardian players to buy assets in large quantities, and also brought considerable investment returns to the investment institutions.

The contribution of PE two level market fund also saw the importance of fund year. At the beginning of this year, the last window period of the Ardian PE two level market fund raised at the beginning of this year, although potential LP was unable to contribute due to the lack of work during the epidemic period, LP also increased the amount of investment before the fund closed, making the total amount of fund-raising for the eighth stage PE two level market fund outperformed the initial recruitment plan.

Yao Binchao's feedback from the investor side of the fund is that "we think that the PE two level may be a good asset allocation option in the next few years. Some institutions may encounter cash flow problems, which is a good opportunity to buy assets at a lower price. "

Opportunities in Asian markets

Ardian's parent fund business consists of two parts of the first tier fund and the two tier fund, of which two of the market assets hold over 50% of the assets in the US, 20%-30% in the European market, and about 15% of assets in Asia. From the perspective of the funding of the parent fund, Ardian has invested more than $3 billion in over 100 funds in Asia, and has invested more than 500 million US dollars in 18 Asian companies through the strategy of investment in Asia.

Ardian also received more support from Asian investors at the fundraising side. Statistics show that Ardian's newly completed eighth phase PE two market fund investors include major pension funds, sovereign wealth funds, insurance companies, high net worth individuals and financial institutions, with 20% of Asian investors from Singapore, Korea, China and Japan.

"We have achieved strong user growth in Asia and will have more investment in Asia over time," said Jan Philipp Schmitz, head of Ardian Asia.

As a matter of fact, Ardian has no special regional allocation strategy, so the assets share of each region is similar to that of the global PE industry. But Yao Binchao can see that "many funds in the future China will have a larger share of the global market after they have been raised, so there will be more Chinese assets in the assets sold by LP."

In an interview with the economic news reporters in twenty-first Century, Ardian learned that, through investing in more than 1 investment portfolio companies through 1600 related funds, the fund has set up corresponding funds and project databases. Through the database, you can clearly see the head assets in the current operation data, cash flow situation, exit expectations, so that Ardian can quickly give a fair asset offer when the trading opportunities appear.

This also refers to the functions of Ardian China office: building close cooperation with the GP team in China, looking for investment opportunities of first tier funds, looking for potential sellers in China, evaluating the value of quality assets in China, promoting China's projects and investment, and further implementing the two tier gold business in the Chinese market.

Back to the new fund's configuration, Yao Binchao told the twenty-first Century business news reporter that the external phase of environmental change will not affect the core strategy of the team: "in terms of configuration, we emphasize All Weather Solution". The strategy has not changed in the past 20 years, that is, to make bigger projects, serve LP of large organizations, set up its own database, and track the value of head assets. This is our moat. "

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