Voice of Anchor

Welcome to Managing Asia, I am Christine Tan.

We are here in Hong Kong to talk to an investment group some called the Berkshire Hathaway of China. Today we talk to co-founder, Wang Qunbin.

In China, fosun is a giant, one of the largest private companies, creating ways of acquisition abroad, buying up French Resort operator Club Med and Greek retail chain Folli Follie among others.

Wang:

We believe with confidence that we can have a business model that connects China’s momentum to the world. A model that is very close to Berkshire Hathaway but yet unique to Fosun.

Wang Qunbin, helped to set up Fosun Group in 1994, one of the 4 young graduates from Fudan University, who were hit by the entrepreneur and fast developing of China.

The 4 of us were classmates at Fudan University, three of us went to the same class. In 1992, Deng Xiaoping made a speech during his southern tour, which encouraged people especially young people to become entrepreneurs. So we started our journey of entrepreneurship by entering into business.

The 4 from Zhejiang Province started a small venture in market research 2 decades ago, hitting the big time when they play the property game. By the late of 1990s, Fosun had become a major developer in Shanghai.

We discovered the real estate opportunities in Shanghai and in China are enormous. So we started by becoming real estate agents, then property developer and investor of land. 3 of us majored in Molecular Biology and genetic engineering, and we felt there was great opportunity in biological field.

Of course we started by only selling medical equipments, but the business has grown into the current Fosun Pharmaceuticals.

Wang, who was appointed President in 2009 and runs the day-to-day operation of the group. A business that has diversified from real estate and Pharmaceuticals to Steel and mining to insurance.

Over the last 20 years the greatest challenge was how to adapt the global perspective of our competitiveness. We know China is developing, we will continue to add value to the company and able to raise our competitiveness; however is this competitiveness world class, first class and awesome? For this reason we must insist on expanding our world view and learn zealously.

Fosun launched Peak Reinsurance in January, one of the several key strategic moves to become a global investment group, following the footsteps of the Oracle of Omaha, Warren Buffett and his price-diversified company.

Christine:

Fosun has transformed itself, grown beyond its industrial base to an investment company, at what point you and your founders decide to model the company of Warren Buffett’s Berkshire Hathaway?

Wang:

I feel that the Berkshire Hathaway model is one of the models that we can draw on and learned from. The main point we pick up warren Buffett and Berkshire Hathaway is the concept of value investing, the principle we insist on. Of course we also learn that how the insurance business can bring about long-term, high quality and relatively low-costing capital funding for investment purposes. We are also learning from GE of America, a company that has gone through the generations its excellent management methodologies and how it has sustainably developed pool of talents. Thirdly we are learning from Carlyle and Blackstone of America, how they have created value for their investors by managing other people’s assets. But fosun will retain a unique model of development.

Christine:

So you look at many companies, but in the end how did you and the founders decide Berkshire Hathaway was the right business model for Fosun?

Wang:

Let’s put it this way: Fosun has a unique model, we do not learn only from Berkshire Hathaway, but we feel that model is most worthy of emulation. This is because it places emphasis on investments, in the last decades it made many investments and many successful ones. Of course Investment requires a large amount of capital, Berkshire Hathaway has a model of funding using paid-up insurance premium, a model very much worthy of emulation.

Christine:

To be an investment company like Berkshire Hathaway, you need a steady source of funding. As one of the founders you are put in charge of building up the insurance business of letting the company get the access to low-cost funding. As a newcomer, how long did it take for you to make a meaningful entry into the segment? What was the process like?

Wang:

Firstly, I am convinced that investing with capital derived from paid-up insurance premiums is a very long-term matter. At this point of time, we feel we’ve just started. In order to achieve such an objective, we may need a longer time span of 10 years or even 20 years for our insurance paid-up premiums to reach a sizeable scale. We are fortunate that our team is still young, and history has given us sufficient time to achieve this goal. At the same time, we feel that China’s economic development still provides a huge potential for growth of insurance. And that gives us opportunity to fulfill this objective and strategy.

Christine:

You yourself are trained in Genetic Engineering, for many years you are put in charge of growing the company’s pharmaceutical business. What do you know about running an insurance business?

Wang:

Firstly, it is still a working progress for us as far as learning how to run the insurance company is concerned. But we feel the most important thing any companies should have is the ability to learn. Out of the four years at the university only two years were spent on the major, of course thereafter when we become involved with business we continued our learning in the medical field. What’s important is that we continue to learn voraciously in real life. We also see that the principles of managing an enterprise including building teams are universal, regardless of which industry you are raid in. We know that to grow a successful business it’s important to build up an outstanding team of professionals who knows this industry and how to manage it well. When we set up Peak Reinsurance in Hong Kong, we were working with partners such as Franz and Eckart to tap on their wealth, experience and entrepreneurial inspirations.  

Christine:

Do you now know everything there is to know about insurance?

Wang:

We are still in the process of learning, let us summarize this in 2 aspects:

Firstly we have to continue to learn, and secondly even if we feel that we know this business, the environment and policies are ever-changing, so we must not stop learning. On that note, we must continue to collaborate with others and capitalize on talented people.

Christine:

Today Insurance is a core business for Fosun, you bought property insurance Yong’an, set up a life insurance joint venture with Prudential, and established Peak Reinsurance with international Finance Corporation, is the company’s transformation into an insurance-funded investment model, is it now complete?

Wang:

I feel that these actions still are rather luminous to make insurance our core business, we feel that we are just at the start of the journey, we still have the further strength and expand the business we already have, we also hope to beef up the terms of investments in China and globally.

Christine:

So specificly what’s missing that you want to address and build up in your insurance businesses?

Wang:

Within the insurance industry, there are still many business models that we need to prevail, for instance the sell related business is still missing for us, this includes the distribution of life insurance which we are still lacking. Secondly we feel that there is a lot of rooms to innovate in the insurance space. On one hand, China’s authorities have been opening up their regulatory regime, giving us a lot of scope to innovate and bringing in new teams and develop the market.  Thirdly, most of our current insurance businesses are in China, well the Peak Reinsurance is mainly in Asia, we are inspired to bring together the knowledge and business opportunities from all over the world. We hope to be able to grow our insurance business all over the world in the future. For this reason, I feel that we’ve just started our journey.

Christine:

How would you make that shift globally? How would your business model change?

Wang:

Firstly, Peak Reinsurance covers whole of Asia, and even the world as Reinsurance is by nature global. Also we hope to have more deals that expand our footprints globally.

Secondly, we have started investing around the world in consumer business, we formally announced the deals of Club med and Folli Follie, and in Pharmaceuticals we invested in R&D related companies in Europe and America like Alma. We also hope to emulate this model to our insurance business by having more investment globally. Of course we have not started, we are still in process of searching.  

Thirdly, I think there are a lot of scopes to bring together global teams by tracking outstanding professionals to join us.

Christine:

How long would it take for you to achieve this ambition?

Wang:

We believe it will take a long time and we are mentally prepared that this will take an extended period of time. 5, 10 or 20 years, but we hope this will be realized soon.

Christine:

I understand the fund available for investment from insurance businesses now stands at 2 billion US dollars at the end of last year. How fast and how quickly can you grow this pool of funds for investing, what’s the target you have in mind?

Wang:

As the end of last year, the insurance funds available for investment are in excess of 2 billion US dollars. We hope to be able to grow this up to 20 billion US dollars and beyond. Of course we feel this will require a long time to achieve but we are confident of it.

Christine:

Fosun has been on the powerful investment overseas in the last couple of years, you bought a stake in Club Med, which is a French resort chain, you bought Folli Follie as well, which is a Greek fashionaire, most recently, you bought Alma, which an Israeli medical device maker. What sort of deals will you typically look at? What’s your investment criterion?

Wang:

Our first criterion for foreign investments is based on the principle we call combining China’s growth momentum with global resources. What we mean is that we hope to invest in companies that will produce a synergistic effect with development of China. The future of China presents a huge marketplace; we will see the rise of middle-class, so the demand for high-end insurance products will be enormous.

Secondly, the industry we want to play isn are consumer brands and health products which includes Alma that we spoke about. And also internet related industries and financial services. These are the areas we will place special focus on.

Christine:

How much does it go to finding these companies , what restraining requirements will you go through before you decide to go ahead with investment?

Wang:

Our investment criteria, if we put it in measurable financial terms, would be we want to see annual growth of these companies at least 10%, even better if it grows 20% or 30%. Secondly, we are looking for suitable P/B and P/E ratios, after investing we hope to see IRR more than 20%. Thirdly, the size of our investment must be more than 50 million US dollars, but less than 1 billlion US dollars. That’s offering us some flexibility.

Christine:

With Europe still in Crisis, the list of bargain prices is growing for you, is there anything in Europe you want to acquire when opportunity came up?

Wang:

We are also looking at other consumer products and financial services in Europe, as well as pharmaceuticals and health opportunities. Besides Europe, we feel that there is growth potential in the U.S. And also we are scouring for opportunities in Japan and southeastern Asia. 

Christine:

What sort of deal size are you typically looking at?

Wang:

We are quite flexible when it comes to the size: we want a meaningful shareholding of at least 10% and have the right to recommend directors into the board so that we can bring about opportunities in China for the enterprise we invest in.

Secondly, our investment can range from 50 million US dollars all the way to 1 billion US dollars: this means that we are interested in companies with market cap from 500 million to 10 billion US dollars.

Christine: Sounds pretty ambitious.

Wang:

We are hoping to create value for great companies who came to invest in China, to help further their business development.

Christine:

For a Chinese company looking for assets overseas, you will inevitably run into issue of trust, not all your overseas forays are successful. How much public relations, how much networking do you have to do to enter a highly protected market like the U.S?

Wang:

In concrete terms , we are firstly flexible with respect to the amount of shareholding, we can choose to participate in equity. In the case of Folli Follie, we are the minority shareholder with the second largest shareholding. The major shareholder is still the family behind the business,.

Secondly, after investing we retain the majority of the original management to bring about growth. So in the case of Club Med, although we are the biggest shareholder, the management has remained with the company.

Thirdly, we support the company in its growth. Whether it’s Folli Follie or Club Med, we have supported many of their activities in China, their expansion has obviously picking speed in China. In this concept, we are emulating Buffett by becoming a benign and proactive shareholder. In terms of equity ratio, we choose to be flexible in order to support the original team to retain growth.

Christine:

So you don’t think protectionism is going to be an issue for you when you come to invest in the U.S?

Wang:

We haven’t met any so-called protectionism in our investment so far.

Christine:

So could your next big investment be in the U.S then?

Wang:

We are currently exploiting opportunities all over the world, including the U.S. But I can’t say that the next big deal will be in the U.S. The fact is, there are a lot of investment opportunities in the U.S.

Christine:

In 2010 you appointed the former U.S. treasury secretary John Snow to the board, has his appointment been useful to you?

Wang:

It has indeed been very helpful to have John Snow as a consultant on our board. This is because Mr.Snow possesses a good global perspective, he provides good advices in the field of corporate development, finance and economics, which has been instrumental to our strategy.

Secondly, Mr.Snow has strong personal network and connections to some global resources. He helped us achieving desired communication and exchanges of some projects. He’s been great.

Christine:

So he has opened doors for you?

Wang:

I think so.

Christine:

And in Shanghai, Forte Property continues to be a core business for the group. How cautious are you to work in this sector given recent government measures to clamp down the property market in China?

Wang:

Firstly, the government regulatory controls are meant to promote a healthy property market in China in the long term. So the real estate price will grow moderately in line with the GDP growth.

Secondly, we feel that these measures are actually beneficial to the real estate companies in the country. We can ensure a stable growth by curbing huge bubble from forming after China’s phenomenal rise in property prices.

Thirdly, we continue to be very positive about feature development in the country’s property market, despite the curbs the real estate prices are still on the rise over last few years. And specially recently, without these curbs, the rise will be even faster. From that perspective, there is still enormous room to grow in the real estate sector.

Christine:

So you are not worried about a property bubble in the market?

Wang:

In recent times we are not worried. Our view is that there is no bubble in the China’s property market up to this point of development. However, if the government is not taking appropriate measures, some regions which experienced surging price may see bubbles forming.

Christine:

In Fosun there are 4 founders including yourself. What exactly is your decision-making process? Who calls the shots and who makes a decision at Fosun?

Wang:

Our decision making mechanism has several layers: first we have different investment teams covering different industries, their recommendations will be submitted to the decision making board which includes us, our CFO, our chief Legal Officer and our human resource director. The decision is made collectively by us, the 7 executive directors. In principle, we require all 7 to agree before the investment goes through. Of course it’s normal to have differences, but we resolve that with communication. Of course during exchanges the opinion of Chairman Guo is taken seriously.

Christine:

Fosun hopes to grow its presence overseas. But none of the founders including yourself have studied or worked overseas, do you think you have what it takes to be to be successful overseas?

Wang:

I feel that every cloud has a silver lining. We might not have lived abroad, have international exposure which appears to be a disadvantage. But in another way looking at it as it is, because of our shortcoming, we are more willing to collaborate with talents with such exposure. And we are more willing to collaborate with global foreign partners.

We’ve also seen founders from many outstanding global companies, from the U.S or Europe who does not have experience working or studying abroad, but we are similarly able to excel. This has given us quite a lot of confidence in our expansion overseas.

Christine:

You know, finding talent these days is so intense in China: wages have been rising as a result, how problematic is this for you in going about attracting talent to help you grow your company?

Wang:

Our wages are now beginning to match international levels, some of our employees’ pay packages are close to the levels in America, but we are still lower than northern Europe. When new employees join us, we provide them with a platform to develop their entrepreneurial skills, which they can share their value creation, just like any other partners or shareholders. This makes them feel that they are trying their hands on entrepreneurship, and not just career managers.

Christine:

You and your founders are in your earlier 40s, but you are part of a growing breed of youth entrepreneurs in China. What advice can you give other people how to be successful in China?

Wang:

Firstly, one must have the spirit of enterprise: in the first place, entrepreneurship is not an easy task. Such spirit will drive your commitment.

Secondly, one must be able to find opportunities in the ever-changing environment, and if the original business model is not working well, we must admit the shortcoming and take bold steps to correct it, make adjustment and create a new business model.

Thirdly, it’s important to collaborate with and create a talented team to work towards growth.

Christine:

With new political leadership in place in China, how do you think that changes the business landscape in the country?

Wang:

The nation welcomes the new leadership with much expectation. We are also able to see the positive image that our new leadership has established internationally, including that of the first lady. We are fully supportive of the continuation of market reform and openness by the new leadership. We know that this will promote sustainable growth for China and ensure better growth and cooperation with many countries and their enterprises.

Christine:

And finally, in the last 20 years, Fosun has transformed itself from a purely industrial group to an investment company in China, where do you see the group in the next 20 years? What do you and your founders want to achieve?

Wang:

We are inspired that in the next 20 years our team will continue to lead the growth of the company with the spirit in mindset that entrepreneurship, we also aspire for Fosun to become a first-class global investment group.

Christine: So the Berkshire Hathaway of China?

Wang: We aspire to be near that.