Bain’s Chua: China remains a ‘core market’ for us

Kei Chua, partner, special situations at Bain Capital in Hong Kong, continues to consider China a “core market” for the firm’s Asia-Pacific strategy as the country’s property market woes have not hurt Bain’s investments there.

Last week, the firm announced a $250 million joint venture with Warburg Pincus-backed Chinese new economy infrastructure and property firm DNE to develop and operate manufacturing parks in China. DNE has investment partnerships with some of the biggest institutional investors, including GIC and QuadReal Property Company.

It is understood that Bain’s capital in the investment came from several funds under its special situation strategy. In Asia-Pacific, the US firm closed on $2.05 billion for its flagship special situation fund Bain Capital Special Situations Asia II in 2022. The venture with DNE was seeded with assets across China’s leading manufacturing hubs along the Yangtze River Delta. Bain is the strategic investor while DNE is the project manager for the platform.

“Because the current real estate situation hasn’t hurt us, we’re still very active,” Chua says. He pointed out that the firm has avoided residential development but has focused on infrastructure and hard assets supporting domestic consumption growth in the country. These include investments in data centers, industrial parks, modern manufacturing facilities and warehouses.

“For the last few years, the firm has been more focused on things that are more bespoke, more defensible,” he notes. Under this direction, the firm announced its privatization plan for Chinese data center company Chindata in August 2023 and invested in a $300 million convertible bond issued by DNE Group in 2019.

While Chua has seen some of the foreign investors shutting down activity in China due to performance or geopolitical issues, the firm has continued to be active in the country as it has been able to realize strong returns from its investments. While Bain declined to disclose actual performance figures in China, SSAII generated a 18.03 percent IRR, according to PERE data.

“We’ve exited a lot of things in China over the last few years, so we’ve realized profits and returned capital, which is why our investors trust us to keep making investments in China,” Chua says.

For example, the manager sold some of its shares in Chinese logistics company CNLP and data center company Chindata, as well as offloading all of its non-performing loans in the country. Bain Capital started investing in Chinese real estate when Chua joined the team in 2016. The firm declined to disclose its real estate AUM in the country.

Chua added that investors were comfortable with Bain’s China investments because of the firm’s diversified Asia-Pacific investment mandate.  “We don’t put all our eggs in one basket and therefore have developed an Asia region-wide platform,” he said.

Bain makes real estate-related investments in the region through both its special situations and credit funds. For example, the firm invested in the development of a Korean casino resort called Inspire Entertainment Resort in 2021. The investment was funded by Bain Capital Special Situations Asia Fund I.

“With 10 offices in the region, we can invest in India, we can invest in Southeast Asia and Australia. We are not investing in China for the sake of having to invest in China. We’re investing in a deal only because we think it’s attractive,” he says.

Despite the headwinds in the Chinese real estate market now, Chua would not rule out any interesting opportunities emerging in the country in the near future. “Nobody could predict what would have happened to the Chinese real estate market three, four years ago,” he says.

“But maybe there’s an opportunity for us to come in and take off some of the assets from companies with liquidity issues. And that could create a whole lot of opportunity for us to invest in China again.”