I’m not sure if I’ve gotten more questions about the Middle East or China, but they’re both up there on the “hot markets in finance everyone wants to get into” list.
While everyone knows about Hong Kong, information on mainland China is much harder to find since US and European banks have less of a presence there.
But there are plenty of small, local firms that do have a presence – and you’re about to find out exactly what it’s like to work in private equity in China.
NOTE: This interviewee worked at a small PE firm in a short internship. The experiences described are not characteristic of the entire industry in the country.
How’d You Get It?
Q: Let’s talk about how you got this internship in the first place. Were you one of those people who was obsessed with finance even before you got to university?
A: Nope, it was all very random. I was born in China, though I moved to the US when I was very young – after that, I got interested in stock trading and did well with an account my parents gave me.
I hadn’t really thought about investment banking specifically until I had been at university for a few years. I knew having work experience was super-important if I wanted a solid summer internship or full-time job, and I decided that a school-year internship would be a good way to get there.
Since you stressed the importance of networking, I started contacting alumni and narrowed down the list to 15-20 names in mainland China.
Q: How responsive were the alumni? I’ve seen it go both ways – sometimes they are very helpful, while other times they stop caring because so many other students contact them.
A: They were pretty responsive for the most part, though I definitely had to follow-up a few times with some of them. One guy actually admitted to me that he purposely didn’t respond to my first 2-3 emails because he was testing me to see how serious I was.
If they didn’t respond at first, I would go straight to the phone and call them – just like you’ve said before, the phone yielded much better results than email.
Q: Wait a minute though – you were in the US at the time, so how did you call all these people in China considering the time zone difference of 14-17 hours?
A: You just have to bite the bullet and wake up at 3 or 4 AM to make the calls. No one expects you to fly halfway across the world for networking purposes – but if you can’t even stay up late or wake up early to call them, they think, “Um, can he even do investment banking?”
Q: Right, that’s a good point. So when you were calling these bankers, did you do it in English or Mandarin?
A: I felt more comfortable using English since I had lived in the US for 15+ years, so I tried that at first – but 90% of the time they switched the conversation to Mandarin right away.
My first few calls failed miserably because I didn’t know all the business and finance lingo – if you only speak the language until age 5, you won’t know how to walk someone through a DCF.
Q: Good points to keep in mind if you want to cold-call your way into finance in China. How did you get a school-year internship set up? Was it their idea or yours?
A: My school has a month-long break between semesters, and it’s common for students to do short internships or other activities in that period, so the alumni suggested it.
I also knew it would be easier to get something informal for 1 month as opposed to proposing something longer-term.
Q: So what was the interview process like once you contacted these firms and you were both discussing a school-year internship?
A: I went through 4 interviews – 2 with the MD of the firm I contacted, and then 1 with the Associate and 1 with the VP.
The MD was a foreigner, so that one was in English and he focused on “fit” questions like why I was there and what I wanted to do in the future.
The interviews with the more junior guys were more technical and they asked the usual questions about DCF analysis, accounting, and valuation – one of the Associates who dealt directly with clients also asked me about what makes a great sales person in China and how to develop relationships here.
What’d You Do?
Q: Given that it was a small firm, I’m guessing it was pretty unusual for them to even take on an intern.
A: Very. They had never had an intern before, and they had rarely hired anyone without previous internship or full-time experience.
Plus, there were fewer than 20 people at the firm – which meant everything was chaotic and that I was asked to do some very random tasks.
Q: Like what? What was your average day like?
A: I would usually get in around 9 or 9:30, and I’d work on any urgent tasks that came in overnight. If nothing was waiting, the full-time Analyst might come over to me and say, “I need a list of companies that meet criteria X, Y, and Z” or ask for help with other random tasks.
Later on, the MD might call me directly and ask for help with a pitch book or for help translating documents or emails – I was the only native English speaker there who also knew Mandarin, so I had to help with translation.
There was a lot of downtime as well – sometimes I would just read the WSJ or shop online during the day. They had never had an intern before, so sometimes they didn’t know what to do with me.
Q: You didn’t mention anything quantitative just now – did you get to do any modeling work?
A: No one in China takes “modeling” seriously, at least if you’re working with small or mid-size companies here. It’s almost a joke because the numbers are unreliable and sometimes companies just blatantly make up data or lie about their financial figures.
They did let me play around with a few numbers and Excel models, but it wasn’t anything in-depth.
It might be different at bulge bracket banks, but overall I would still expect less modeling because the industry is less developed, companies are less mature, and good data is hard to come by.
Equities in Shanghai
Q: You mentioned that the industry is less mature in China. How else is it different?
A: You could probably write a book about that one, but here are the key differences:
- Everything is based on relationships, “gut feelings,” and haggling as opposed to sophisticated analysis or negotiation.
- Most entrepreneurs and management teams here know almost nothing about accounting or finance – many of them don’t even know what an Income Statement is or how much money their business actually makes.
- To have any chance of representing a company or investing in a company, you need to go there in-person and meet with them – it’s impossible to figure out what’s promising just based on Internet research or filings.
- There’s no real hedge fund industry, at least not in mainland China – it’s only banking and PE.
- Many of the smaller finance firms here are actually combination private equity and M&A advisory firms, which can create conflicts of interest.
On the last point, the company I was working at was exactly like that – we made investments but also took on clients in M&A and financing deals.
Q: What about the industry focus? Were there certain markets or companies you focused on?
A: I focused on consumer, retail, and downstream energy companies – we stayed away from technology and pharmaceuticals because they’re under intense regulation, which makes investing and dealing with them difficult.
Construction and infrastructure are also big, though we didn’t do much work with them.
Q: How does the deal process work in China if the numbers are unreliable and no one can answer in-depth questions on their companies?
A: To find companies to invest in, you could look at their reported or projected financials, but that tends to be unreliable – one company we saw projected 4,000% growth each year for 10 consecutive years.
Instead, you usually go through networkers – people here who spend all their time finding companies to introduce to bankers and PE investors.
Once you find a company, you negotiate directly with the founder – but it’s not like banking in the US where you come in and say, “Based on our DCF, we think you’re worth…”
It’s more like haggling for goods at a street market – you throw out one price, the founder responds with another price, and you go back and forth until both sides reach agreement.
How Much Did They Make You Drink, and Did They Pay For Everything?
Q: Wow. What was the culture of your company like? Did everyone hang out together or did you do your own thing?
A: It was very collegial. Everyone got in at around the same time every day, and everyone left at the same time every single day.
Since the office was small, even tiny bits of news rapidly spread and everyone knew what everyone else was doing.
So if someone from another company on the same floor suddenly had a crush on you, everyone would find out within 2 hours.
After work everyone would go out for drinks, and you pretty much had to go just to fit in.
You’re expected to do a bottoms-up every time someone senior asks you to, so that means ~7 shots every hour for a party of 6.
Q: You mentioned before that your MD was foreign, but it sounds like language skills are critical in China. Could the MD get around that just because he was foreign and kind of a big deal?
A: I should clarify something: if you look Asian and you’re in China, people expect you to know the language and the culture.
But if you don’t look Asian, people will not expect you to know anything and they’ll treat you much differently.
Foreigner friends here have actually worked as Analysts without knowing even basic Mandarin – but if you look Asian that would be impossible to pull off.
If you do want to work with clients one day, though, understanding the language and culture are important because many smaller firms here don’t know English.
Q: Any good stories about foreigners screwing up and making cultural faux pas in China? Tell us a juicy story.
A: Ok, fine. One time, our MD thought that just because he had a connection to a large company here, he could call the C-level executives directly and ask for a meeting. He didn’t realize that in China, that kind of behavior is taboo and you need to go through the proper channels.
They got very mad at us, but interestingly they didn’t yell at the MD – he was foreign, so they didn’t expect him to know anything. Instead, they yelled at our entire team and called the Associate to ask why he hadn’t corrected the MD’s mistake.
Q: Yup, that sounds like Asia. What about the hours?
A: On average I worked 11 or 12-hour days – usually starting at 9 AM and finishing at 8 or 9 PM. No all-nighters, and no 16-hour days.
Q: But I’m guessing the pay was also less than what you’d get with an internship in the US or Europe?
A: Yeah, the pay was definitely less but it was only a month-long internship so I wasn’t expecting much to begin with.
Q: I see. Do most bankers stay in banking? Or do people still hop around and obsess over exit opportunities?
A: There’s not as much of a tendency to jump from investment banking to private equity, partially because so many firms here do both. Some of the people at my firm came from larger banks, but overall there wasn’t as much of an obsession with “the track.”
Q: Sounds like most other regions outside the US. Thanks for your time – I learned a lot!
A: No problem.
NOTE: This interviewee worked at a small PE firm in a short internship. The experiences described above are not characteristic of the entire industry in the country.