Other panelists working in private equity in India and China laid out pluses and minuses in the two markets during the Wharton conference, which was titled "Driving Returns: Value Added Investing."
Mukund Krishnaswami, managing director of Krilacon Group, an investment firm based in New York and Philadelphia, agrees with Siegel about the current investment climate in India. "Long term, I'm a very big bull on India. India is a country where they've done so much wrong in the last 45 years. Yet despite all that there's so much that is good going on that if they just get it right, the opportunities [will be] fabulous in 25 years," he said. "In the short-term, I'm quite a bear. I think the risk premium just isn't there in most assets to be spending a lot of money [in India] today."
Krishnaswami advised investors to follow the broader economy, not the trends that are hot today, including information technology or real estate. "Look for derivative areas of economic growth and take a 12- to 25-year horizon. Those who do will be fairly compensated for the risk they're taking."
Panelist James Hahn, CEO of Global Venture Network and managing partner of China Private Equity Partners with operations in Hong Kong, said an overflow of foreign capital could hurt private equity returns in China, but he does not see that happening until after the 2008 Olympics or the Shanghai World Expo in 2010.
Chinese companies with good management are growing at a rate of 30% internally and 30% globally, Hahn said. "A good company operating in a good macro is a formula for success." He said there are at least 3 million privately owned companies in China. Of those, his firm believes 300,000 would qualify to list on NASDAQ or NYSE today. One percent of them, or 3,000 companies -- "jewels" that have sound management -- comply with Sarbanes-Oxley, and could be scaled up.
Hahn noted that his firm invests only in companies with management that operates under U.S. rule of law and accounting standards. "We will spend time with any Chinese CEO who has made the first step by showing his or her commitment to the process by having the company audited under U.S. GAAP rules.
"This 'PE arbitrage' has delivered extraordinary performance. We're achieving that and everybody we know in China is achieving that," he said. "It's just the way things are today until the markets become more efficient."
Xiaojun Li, principal at IDG Venture Investment, remarked that he is bullish about China over the long-term because of its growing middle class and potential as a consumer market. He pointed out there
are more Internet users and engineers in China than any other country, and that China also has a strong entrepreneurial culture. "You need to be patient," he said.
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