CARLYLE Group, which has US$3.25 billion invested in China, is wary of new deals in Asia’s largest economy as it primes its portfolio companies for a tepid recovery in a world still reeling from the coronavirus.

Yang Xiangdong, a 19-year Carlyle veteran who leads the US$217 billion buyout giant in Asia, said there’s nothing to be gained from trying to be the “hero” who calls the bottom of the ongoing churn.

“China ramped back up so fast and we were expecting business to be back to 100 percent normal by now or soon, but we haven’t quite seen a return to that level yet across the whole portfolio,” Yang said in a recent interview.

The firm held off in the first five months on making any fresh investments, part of Carlyle’s decision globally to tread carefully as rivals rushed in to snap up distressed assets. Its energies have been focused on ensuring its portfolio companies adapt quickly to business in the coronavirus era, where McDonald’s China now offers customers the temperature details of the chefs flipping their burgers and lab operator Adicon has pivoted to tapping the booming market for Covid-19 testing among workers returning to the office.

Private equity investments involving a foreign buyer have amounted to just US$600 million through May this year in China, about half of the same period last year, according to Prequin. The number of deals slid to 9 from 16.

Deals have been flowing at faster clip globally, with rivals such as KKR & Co. on the hunt. KKR has just since March spent about US$13 billion to snap up assets. Many in the industry are also focusing on credit, with Apollo Global Management Inc., KKR and Oaktree Capital Group building billion-dollar stockpiles to buy distressed debt.

Carlyle has been more reticent, but is starting to look at potential deals. Co-CEO Kewsong Lee in early June called on his teams globally to start picking out investment candidates after the difficult period of portfolios adjustments.

Carlyle’s focus in China has shifted rapidly since the end of January. The team has juggled ensuring staff safety with tackling liquidity concerns and business pivots as China’s lockdown forced portfolio companies to rethink consumer interactions and revenue models.

Over three days in late January, with billions on the line, the Carlyle team in Hong Kong talked to all 19 firms in its portfolio to check on cash levels and supply chains, game out worst case scenarios and calm frayed nerves.

“You have to reassure the senior management and make sure they don’t panic and they have to transmit that to their employees,” said Yang. “This was particularly important during the peak in February.”

One lesson learned from the crisis is that bigger is better and having top management teams is crucial, according to Yang.

That will serve as a guidepost for making deals ahead as Carlyle cautiously goes back on the prowl.

“Clearly we have to maintain this absolute focus on our assets in the ground, but we are now also feeling a new pace emerge on the investing side as the world begins to reopen and recover,” Lee told Carlyle’s global fund heads in early June. (SD-Agencies)