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"Sierra Asia delivers. For us in China, they brought access, built bridges, developed commanding positions and accelerated accomplishment in China... and we have been working successfully in China for over a decade.""
Patrick Jenevein
CEO
Tang Energy Group

"Lee guided us through the ins and outs of the Chinese business and entertainment world, allowing us to avoid many of the common mistakes newcomers to China make."
Robert Nederlander
Jr. President
Nederlander Worldwide Entertainment

"I am particularly impressed with Paula's ability to connect with senior Chinese clients. Her proven track record in adapting and excelling in new business environments and her abilities to understand, appreciate and leverage unique cultural intricacies and nuances will be of particular value to her clients."
Charles Li
Chairman
JP Morgan, China

"Lee Sands was essential to our efforts to establish the first sanctioned Cooperative Joint Venture in the highly sensitive youth culture oriented music business in China. The depth of his cultural awareness, linguistic skills and familiarity with Chinese Government personnel and process were the practical key to our success in our market entry strategy."
John Dolan
Former Senior Vice President of Business Development
Sony Music

Lee's "tenacity and street smarts win raves from U.S. business."
Business Week

Lee was commended for "developing a negotiating strategy for persuading China to drop a range of restrictions on foreign companies, and to phase out protection for state-run industries."
The New York Times

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NEWS

Selling Out?

Central Intelligence

By Marc Raybin

The credit market is in shambles, the dollar is getting trounced by nearly every other monetary denomination there is and now this: the Chinese government is starting to buy up stakes in some of the U.S.' most prominent private equity firms.

It is that last bit of news that has elicited a range of emotions, most of which are strongly against this trend or equally as enthusiastic about it happening. The Carlyle Group, Kohlberg Kravis Roberts & Co. and TPG, three of the most powerful and biggest American private equity firms, have reportedly held discussions with China's $61.5 billion Social Security Fund about selling as much as 9.9% of themselves to the mammoth fund. A representative from Carlyle, which is said to be the most eager of the three and has already sold 7.5% of itself to Mubadala and 5.5% to the California Public Employees Retirement System, said he could not comment on the reports, as did spokesmen from both KKR and TPG.

As is true with many hot button issues, figuring out which side is the good guy and which one is villain depends upon whom you ask.

"For the private equity firms, investment from the Chinese government allows them to gain much needed funding in order to compete with the strategic buyers," says William Zheng, a Shanghai-based corporate attorney with the law firm of Sheppard Mullin. "By having the Chinese government as part of the ownership of the firm, it also allows the private equity firm to gain a footing into the ever-growing Chinese economy."

Others, however, are wary of the Chinese government buying chunks of American private equity firms. Many of these critics say it is a matter of the Chinese usurping America's financial dominance, whereby China is changing the face of the global economy. Bruce Fenton, founder of independent capital management firm Atlantic Financial, says most Americans are unaware of this happening and he criticizes politicians for ignoring the issue. As China becomes an even stronger financial powerhouse, the U.S. is quickly losing its standing as the economic superpower.

"We are being hit with an economic freight train and due to isolationism, we are unaware of it," Fenton says. "It likely will not be until long after the train has run us over [that we will take notice]."

On the other side of the equation are people like Paula Beroza, a managing director of California-based advisory firm Sierra Asia Partners. She takes an equally strong approach for why it is only fair that the Chinese government be allowed to invest in American private equity firms. She says what is good for one side needs to be applied to the other side as well.

"If we believe in free and open markets, we need to embrace it; not just say it is OK if you buy our government bonds but not our equity," says Beroza. "Unfortunately, many people in this country only want the free and open markets when it does not involve foreigners owning large chunks of U.S. assets."

She sites the backlash to the proposed CNOOC acquisition of Unocal, the bid by Haier for Maytag and the proposed minority acquisition of 3Com by the Huawei and Bain Capital Partners. As a result of this American response, the Chinese government has begun placing restrictions of its own on foreigners (i.e., American private equity firms and business, according to Beroza) buying stakes in Chinese companies.

"Just as these types of restrictions would not be good for the U.S., they are not good for the development of China," reasons Beroza. "Neither country can have their cake flow of capital to support their markets and eat it too restriction of that flow to only certain desired asset classes or companies."

In other words, there has to be some sort of middle ground. As Todd Gromley, an assistant professor of finance at Washington University in St. Louis, notes, China would benefit from a higher return on its investment in U.S. dollars while U.S. private equity firms and businesses would have the boon of being exposed to more potential buyers.

It is difficult to say right now what the effects will be of foreign investors buying stakes in American private equity firms. However, if oil continues to rise and the dollar continues to slide, the real question for the asset class, as a colleague of mine asked, is at which point will firms look at the U.S. as an emerging market?