Asian Venture Capital Journal | 09 Dec 2015
As corporate China adjusts to a slower growth environment, Ascendent Capital Partners’ strategy of providing advice alongside capital resonated with LPs
The contrast between Ascendent Capital Partners' first and second fundraises could not have been starker. The debut vehicle encountered challenges that face many first-time funds, closing at $365 million in 2011, below the initial target. Four years on, Fund II was substantially oversubscribed, reaching its hard cap of $600 million in July 2015 after only about four months in the market.
The GP's fortunes are to a certain extent intertwined with those of the broader Chinese economy. "Given the change in the macro environment, more sophisticated LPs realize that our strategy makes sense," says Kevin Zhang, one of Ascendent's founding partners. "People who might have had doubts four years ago when the economy was still booming today see the edge we have in a slowdown. They understand the benefits of the advice-plus-capital approach."
This approach has been likened to a merchant banking meets private equity. Zhang and fellow cofounding partner Liang Meng tap into networks built up over the course of years spent in M&A advisory, capital markets and private equity investment. The firm establishes a dialogue with companies and presents them with ideas before proposing investments.
Meng adds that LPs bought into the strategy simply because they explained how it worked through Fund I. "We would do this at every annual meeting, using examples of deals and testimonies from companies we had invested in and advised," he says. "That consistency and transparency, plus the macro environment changes, all contributed to a better understanding of Ascendent."
Exits also helped. WH Group, where Meng and Zhang are longstanding unofficial advisors to the founder, went public last year and Ascendent has sold its position, while Nano Resources, a components supplier for high speed trains, completed a reverse merger in Shanghai.
Ascendent is looking to build deeper operational capabilities and industry insights over the next five years. Healthcare and education are both of particular interest. While the Fund I portfolio includes a hospital asset and a drug distribution business, the debut investment from Fund II is RYB Education, a leading pre-school care provider.
"There were several early-stage investors and we took them out to become a very significant shareholder," says Meng. "We are looking at additional roll-up acquisitions. This is the largest kindergarten business in China in terms of coverage but it still has a less than 0.5% market share. The industry is fragmented and will consolidate."
The GP is also looking robotics and automation with a view to supporting manufacturing sector upgrades. "China's slowdown has a lot to do with the lack of total factor productivity growth and an aging population," Zhang adds. "The idea is to focus on artificial intelligence and potentially buy technology in the West that can be applied in China."