Chengdu’s potential stirs CEO

LOS ANGELES: Adam Roseman knows how to turn tragedy into triumph. As the CEO of private equity fi rm ARC China, the Los Angeles resident has a knack for fi nding opportunity in unusual places — even in the rubble of an earthquakeravaged Chinese city.

When the magnitude-8.0 earthquake that struck Sichuan province in May 2008 began, the 31-year-old Roseman was meeting with executives from Wowo, a local retail convenience store chain, in a fourthfl oor boardroom in Chengdu.

The provincial capital of 11 million people had already become the cornerstone of his investment in China’s secondary and smaller cities — areas in need of capital to accommodate the rapid migration of the country’s rural population to its urban centers.

The earthquake provided overwhelming evidence to Roseman that he had been on the right track when he opened an offi ce in Chengdu in late 2007, his fi rm’s fi rst outside Shanghai.

On the day of the earthquake, no one, including Roseman, had any idea what was going on. Since the area had not experienced an earthquake in 150 years, those in the building with Roseman thought either the giant municipal construction project on the other side of the freeway had caved in, or a war had begun.

“Literally, when you’re going down the stairs, you’re being thrown back and forth,” Roseman said of the experience.

He and a few others had to kick out the exit door at the bottom of the stairwell, but incredibly, the building did not fall. Roseman likes to point out that not one high-rise building fell in Chengdu during the three-minute quake.

“Chengdu might as well be Chicago,” he said, referring to the sophistication of its infrastructure. Closer to the epicenter, however, “the mountains moved, and (the town of) Beichuan was gone”.

After Roseman suggested they leave the area, Wowo Chairman Fang Jiulin offered to host his guest at his family farm, about 90 miles away.

Roseman spent the next few days in a cinema-worthy setting, a 100-year-old farmhouse that has been in his host’s family for generations, contemplating the earthquake and what it meant to him.

“I said to myself that as a result of this tragedy and the fact that I’m OK, I want to do something,” he said.

In 2005, after founding his private equity fi rm, Roseman had made a few deals in Latin America, mostly focusing on renewable and alternative energy.

Once he noticed the investment opportunity in China’s second- and third-tier cities, however, he decided to shift focus, renaming the fi rm ARC China. (Although the company’s name is not an acronym, Roseman jokes that some say it stands for “Adam Roseman Capital”.)

“I started seeing very good entrepreneurial clout outside Shanghai, Beijing and Guangzhou,” Roseman said. “There are 51 cities now with 5 million people each (in China), and I’ve been to about 30 of them.”

Second- and third-tier cities have a few things in common: they are growing fast, they desperately need capital and “they are being largely ignored”, Roseman said.

Second-tier cities have already saved China’s economy from grinding to a halt after the drastic fall-off in exports from manufacturing dynamo Guangzhou: results from the fi rst half of 2009 show doubledigit growth in Sichuan.

Though they are China’s current economic growth engines, secondary and tertiary ranking cities are grossly underserved, mainly because China’s fi nancial distribution channels are still forming, Roseman said. While the central government is sitting on a lot of capital, the task of distributing it to these areas is enormous.

“For you to take it and allocate it down, it’s an incredible feat,” he said.

Investment from the West is still scarce in these areas because, while they are rich in entrepreneurial opportunities, the local businessmen are less educated in ways to market themselves. That’s where ARC China comes in.

Roseman and his firm are bringing their global investment expertise directly to those entrepreneurs, who might need a little more polishing with their financial acquisitions than would a CEO in Shanghai.

“Adam is a tireless worker,” said Michael Loeb, CEO of Loeb Enterprises in New York and a founding investor in Priceline.com. Loeb met Roseman three years ago when they worked together on the Clinton Global Initiative.

“He has tremendous integrity and focus,” Loeb said. “A lot of investors simply select the stock, but Adam does a lot more than that. He works directly with management.”

Roseman has gathered local talent to fulfi ll his vision.

Ivan Chang is a Taiwan native who moved to the mainland about fi ve years ago and was CEO of a management consulting fi rm in Chengdu.

Now China Venture Partner at ARC’s Chengdu offi ce, Chang works closely with entrepreneurs and their staff to show them how Western-style corporate governance can benefi t their bottom line.

“We show them that things will be better if they do things by the book,” said Chang, who was with Roseman at the Wowo meeting when the quake hit.

In Sichuan, Roseman and his fi rm have invested $2 million in Wowo, with more planned. He is steering the company through the public listing process on the New York Stock Exchange.

They have also invested in Capture Advance, a Sichuanbased fi rm that mines iron ore in Malaysia for import to China. In the second-tier city of Shenyang in Liaoning Province, Roseman invested in NF Energy, a company that makes energy-efficient flow control systems and wind co-generation equipment.

Since ARC’s involvement in bringing the fi rm more credibility among Western investors, Roseman said NF’s share price has risen from $0.08 to $1.64.

When asked to explain his success in investing, Roseman said he attributes it in part to his proclivity to blaze his own trail rather than follow the directions of others.

He described himself as possessing “typical entrepreneurial drive”, and a desire to “follow (his) own instincts and have the freedom to move on them quickly”.

“As it so happens, my instincts took me to China’s unsung opportunities,” he added.