Education-Focused Investment Fund First Of Kind In China

Huiou (Chongqing) Education Equity Investment Fund Looks To Address Imbalance Between School Funding And Student Population

Huiou Chairman Liu Zuolin addressed reporters at a press conference in Chongqing last week

Huiou Chairman Liu Zuolin addressed reporters at a press conference in Chongqing last week

In recent years, China’s education sector has drawn the interest of many international (and, increasingly, domestic) investors, particularly because of its huge student size and vast potential. According to a 2007 World Bank study, in terms of value, China’s educational market comprises just 2% of the world total, even though China’s student population makes up 17% of the world total. Other studies have shown that spending on education on China remains low compared to nearby countries like Japan, where such spending accounted for 34.1% of total household income for the 2007-2008 year, versus around 17% in Shanghai.

Currently, expenditure on education in China accounts for somewhere around 5% of GDP (compared to 7% in the US), while the government’s participation in that expenditure accounts for only 3% of GDP, far below the projected need of 6% and 9%. However, investment in education is a key priority for the Chinese government and even its business sector, with private schools expanding rapidly at a rate of over 20% annually, and many institutional investors see huge potential for even greater growth over the next decade — as the World Bank report noted that industries like education and healthcare tend to remain solid even in periods of economic volatility.

As of this year, 330 million young Chinese — more than the entire US population — are in school, and several private equity firms, like Xueda Education, Ambow Education and others, have already invested in Chinese educational and training institutions. Following these investments, last week Huiou Education Equity Investment Fund announced the launch of its educational investment fund.

According to a company release, Haiou’s management team will seek out education and education-related firms engaged in the cultural and media sectors as their main investment targets, and are looking to raise a total of RMB5 billion (US $735 million), with RMB200-500 million (US $29-74 million) for the first phase, with an operating period of a little over five years. Presently the fund is looking to work with governmental departments, banks and brokerages in Chongqing, Sichuan province, and plans to support its best-performing institutions to go public in Chinese or international markets at an unspecified date.

According to the company release, the establishment of Huiou‘s education investment fund follows moves last year by the Chongqing municipal government to encourage more focused investment enterprises to set up shop in the city. Mayor Huang Qifan, in a statement, called attention to his goal of drawing more venture capital and equity investment firms to his city in coming years. As a representative of Huiou was quoted as saying, government support in Chongqing should play a major role as the fund looks to foster strategic partnerships both in China and overseas:

“Strong support from the government, a professional management team, excellent project reserves, close co-operation with professional services firms both in and outside China, as well as the in-depth understanding of the local business environment are among the many advantages of our fund management…We will continue to work closely with more powerful investors to share good opportunities and strong returns brought by China’s booming education industry.”

Categories

Market Analysis