Online Extra: Q&A With Baring's Kathy Xu

The Baring Private Equity China expert on staying disciplined and why work is her favorite pursuit

Kathy Xu seems to have been fated to become a financier from a tender age. She used to love staying up late at night with her father, entranced by the stories he would bring home about life on the factory floor on the Chinese state-owned truck making company in the the city of Daju, Sichuan province. When she grew up, she also worked at a state company, the Bank of China, but has since moved to Hong Kong and eventually joined Baring Private Equity in 1995.

Now, at 37 years old, she heads China investments at Baring Private Equity and has become a consummate capitalist. She recently spoke with BusinessWeek Asia Correspondent Frederik Balfour in Hong Kong. Edited excerpts from their conversation follow:

Q: How did you end up in Hong Kong?

A:

I worked at the Bank of China head office in Beijing for three years and was chosen as one of three outstanding female employees from among 1,500. I was good at spotting fraud checks, was a youth union leader and good at English. The government sent me to Hong Kong, where I was seconded to Price Waterhouse for a three-year training course in accounting under the Association of Certified Chartered Accountants.

Q: How did you get good at English?

A:

My father borrowed a phonograph, which was very unusual in my town, and I listened to English language training records. Then I studied English literature at Nanjing University. I like Hemingway, he's straightforward with no bull. He captures your heart. I'm simple and straightforward too.

Q: After you left the bank?

A:

I joined Peregrine Private Equity [which closed down in 1998 during the Asian financial crisis] and joined Baring Private Equity. It was a one-man-band then. I had already worked on privatization deals in China with Peregrine, including beverage company Wahaha, which was eventually bought by Danone.

Q: Why do you think you're good at private equity?

A:

Most Chinese working in private equity are returnees, but I'm home-grown. I understand what it means to work for a Chinese company. To be good, you have to have judgment, discipline, and be a good negotiator. And at the bottom of your heart, you must be ready to walk away.

Q: Can you give an example of how your discipline paid off?

A:

Sure. In [Chinese Web portal] Netease, we invested $5 million. The shares IPO'd at $15 and got as high as $30, but then the market tanked, and it fell to 65 cents. I was under tremendous pressure when the stock was suspended, but I said, "We are in hell, there's only one to go, on the path to heaven." I didn't give up. Now the stock is trading at $43, and our original $5 million is worth $40 million.

Q: How have you performed overall?

A:

Of the $50 million I've invested in eight companies until now, I've realized $101 million and am sitting on another $38 million in paper profits on stakes in listed companies. My best best so far is a $3.6 million investment in IT services company Vanda Systems & Communications on which I made $35.1 million after it listed in Hong Kong.

Q: What new deals do you have in mind?

A:

I'm closing one now in a company that makes electronic dictionaries in Shenzhen. The market in China for these is 5 million units this year, and the company has more than 20% market share. I'm investing $16 million.

Q: How do you spend your spare time?

A:

I like meeting entrepreneurs. In coffee shops, hotels, and on the golf course. I'd like to be an entrepreneur if I wasn't in private equity. But I want to do exactly as I'm doing now. This is what I enjoy.

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