When Adrian Cheng looks across Hong Kong’s harbor from Tsim Sha Tsui, he sees his family’s legacy writ large across the city’s skyline. There, from a balcony atop the new luxury apartment building of his Victoria Dockside development, he can view the Hong Kong Convention and Exhibition Centre on the opposite side of the harbor.
With its curved glass and massive sloping roof, the convention center is said to resemble a bird taking flight. His grandfather Cheng Yu-tung, founder of the family’s flagship property firm New World Development, came up with the ambitious plan for the building, which included a manmade island, back in the early 1980s when the market was in a slump and other developers had no interest. Undeterred, Yu-tung turned the convention center into a Hong Kong icon, showcasing New World’s capabilities. Yu-tung reportedly once said the convention center was one of the two projects of which he was most proud.
And the other project? It was the New World Centre, a mixed-use complex that was demolished about a decade ago to allow the development of Victoria Dockside. Cheng has overseen this project from the start, building on the site of his grandfather’s former landmark, as part of a wider strategy to develop his K11 brand.
“I’m not inheriting a 50-year-old family business and trying to preserve it and hold it tight. That’s not me,” Cheng says. “I’m disrupting it and rejuvenating it to create a new business model.” While Cheng’s father, Henry Cheng Kar-shun, continues to serve as New World’s chairman, his eldest son is executive vice-chairman and general manager, a position he has held since 2017.
As with the convention center, the $2.6 billion project was risky. The launching of Victoria Dockside, which has opened in stages from 2018, comes as Hong Kong suffers its worst downturn in a decade. Hit by months of protests and the U.S.-China trade war, Hong Kong’s third quarter GDP contracted 3.2% from the previous quarter, after retreating 0.4% in the second quarter—its first recession since the global financial crisis in 2009.
Victoria Dockside was a gamble in another way. Cheng could have taken the safe route, choosing a conservative design. Instead, Cheng endorsed an innovative design expressing the ideals of his K11 brand, which he created and has refined since 2009. This complex is the biggest and most elaborate expression of the brand. The 65-story office tower is called K11 Atelier, the luxury apartments K11 Artus and the shopping mall with art galleries K11 Musea. The only major non-K11 brand in the complex is Rosewood Hong Kong, part of a luxury hotel chain that the family also owns.
K11 is a novel concept—blending “art, people and nature.” It is meant to fuse together elements of artistic, cultural and environmental design in public and private spaces. “I don’t see [K11 Musea] as a shopping mall, but as a place for millennials to learn, acquire knowledge and be immersed in different cultures.”
To fulfill his vision, he hired 100 designers, architects and artists from around the world, each overseeing a different part of the complex, even utilitarian areas such as the carpark. Coordinating it all was New York’s Kohn Pedersen Fox Associates, one of the world’s leading architectural firms.
One striking example of K11’s brand DNA is the atrium of K11 Musea, which soars eight stories and features twin circular skylights and a geodesic sphere measuring 10.4 meters in diameter suspended over the space whose interior is reserved for performances or exhibitions.
Cheng’s gamble is showing early signs of paying off: even as Hong Kong’s economy contracted, K11 Musea opened last August with 97% occupancy and K11 Atelier has around 80% occupancy at rental rates above HK$100 per square foot ($13)—33% above the average rent for grade-A office space. The complex has won multiple awards—even one for its carpark, which features graffiti by Cara To, a Belgian artist born to Hong Kong parents.
“Our slogan for New World Development is we create, we are artisans,” Cheng says. “I want everyone to believe that they are a creator, that they can innovate and create things.” Victoria Dockside’s tenants include Cartier and Gucci, and several brands new to Hong Kong such as Fortnum & Mason’s first store outside the U.K., a Le Cordon Bleu cooking school and a Van Cleef & Arpels jewelry school (only the second such school in the world).
Cheng, 40 and an avid art collector, first tested K11 in Hong Kong in 2009 with a six-story “art mall” in Kowloon’s Masterpiece building, a joint venture between New World and Hong Kong’s Urban Redevelopment Authority. He then developed K11 projects in mainland China—Guangzhou, Shanghai, Shenyang, Tianjin and Wuhan—all of which combine commerce with art. He plans to keep expanding the K11 brand, with plans for a total 36 projects opened across China by 2024. He also runs the nonprofit K11 art foundation and the for-profit K11 Investment fund.
“The hardest thing I think is the tenacity and the perseverance of testing that product for the first few years, and believing that it would work, not blindly or egotistically, but knowing it would take time,” Cheng says of his vision for K11.
To further his interest in art, Cheng has taken high-level roles at some of the world’s leading art institutions, including being a board member of New York’s Museum of Modern Art PS1 and a trustee of London’s Royal Academy of Arts. He likes to pepper his social media with posts about art.
On the business side, Cheng also runs two private investment ventures from Hong Kong. The first is C Ventures, which he runs with Clive Ng, a veteran entrepreneur and investor in media and internet companies in Asia.
C Ventures has investments in about 20 fashion, media and lifestyle startups. Among them is Golong, a Hangzhou-based site selling cosmetics from trendy brands such as British brand Man Cave and Korean brand SNP. The company claims to be valued after its latest financing round at over $300 million. The K11 Investment fund invests in tech firms in areas such as AI, virtual reality and big data.
Beyond making money on the investments, Cheng sees these funds as a way to stay on top of quickly evolving tastes and technology, especially among China’s younger generation. “The paradigm shifts very fast,” says Cheng. “We’re looking at the consumer habits of millennials and Generation Z.”
Looking beyond K11 and Victoria Dockside, Cheng is continuing to expand New World through other real estate projects. Two of New World’s biggest projects under way are the HK$20 billion Skycity and the HK$30 billion Kai Tak Sports Park. The first will cover 25 hectares, and when fully completed in 2027, will be one of the largest mixed-use complexes in Hong Kong. The Kai Tak Sports Park, meanwhile, will be on the site of the former Kai Tak airport. The complex will be home to a 50,000-seat main stadium, a 10,000-seat indoor sports center, a 5,000-seat public sports ground and other facilities, and is slated for completion in 2023.
Over the next five years, New World would like to more than triple its portfolio of investment properties in Hong Kong, from 2.3 million square feet to 9.8 million. In mainland China, the company’s rental portfolio is expected to grow from 0.2 million square meters to 1.3 million. The company, he says, wants to reposition itself to focus on China’s “greater bay area”—an area within about a 100km radius around Hong Kong that China would like to develop into an integrated megalopolis, including Guangzhou, Shenzhen and Zhuhai.
Demonstrating China’s importance to New World, the family privatized its formerly listed New World China Land in 2016 so it could have more direct control over its mainland strategy. More than 50% of its China landbank is now located in Guangzhou and Shenzhen.
All this expansion comes at a cost. Among Hong Kong’s big developers, New World has one of the higher ratios of debt to equity, at 32% in 2019 compared with the previous year’s 29%. Yet Cheng is confident that New World can handle the debt load. For the fiscal year ended in June, the company’s revenues—generated through a mix of property sales and its rental business—rose 26% to HK$77 billion, while underlying profit was up 10% to HK$8.8 billion.
In December 2018, New World diversified its business further when it bought FTLife Insurance for HK$22 billion through its infrastructure subsidiary NWS Holdings. The acquisition was aimed at expanding the firm’s life and medical insurance business after it launched in the same year Humansa, a Hong Kong-based healthcare service for the elderly in the greater bay area.
To help with the need for more affordable housing in Hong Kong, New World announced last September that it would donate around 20% of its agricultural landbank, some 280,000 square meters, to the government, where it will construct over 100 apartments for low-income families by 2022. Explaining this act of generosity, Cheng says: “What I learned from my father and my grandfather is that you need to have a very big heart.”
I’m a senior editor based in Hong Kong. I’ve been reporting on Asia’s wealthiest people for Forbes and Bloomberg for about a decade. Previously, I worked with British diplomats at the consulate general in Hong Kong. Any tips, please contact me at firstname.lastname@example.org
May.08 — Adrian Cheng, executive vice chairman at New World Development, discusses how the U.S.-China trade negotiations are impacting investor confidence in real estate, the property market in Hong Kong, his current projects, priorities in China, China’s property market and Chinese consumption trends. He speaks exclusively on “Bloomberg Markets: Asia” from the sidelines of the JPMorgan Global China Summit in Beijing.
Tins Plaza was an eyesore, a run-down, abandoned plastics factory in the Tuen Mun district when Tang Shing-bor first spotted it. To Tang, though, it was a gem, one of many forgotten industrial buildings sprinkled around Hong Kong, well worth the roughly $36 million he paid for it in 2005. But even he couldn’t have foreseen that just two years later he would triple his money on it.
It was by snapping up derelict industrial properties like Tins Plaza, flipping them or redeveloping them, that Tang went from the verge of insolvency in 2003 to billionaire in 2016, when he first made the list of Hong Kong’s richest. Now at 86 and No. 14 on the list with a net worth of $5.7 billion, Tang is making one of his biggest contrarian bets yet.
Despite months of protests casting a pall over the city’s property market, Tang has embarked on a shopping spree of Hong Kong’s industrial buildings, spending $700 million last year. He ranks as the biggest buyer of Hong Kong industrial properties in 2019, according to data from New York-based research firm, Real Capital Analytics.
This is the best opportunity I’ve ever seen,” says Tang in a rare interview, held at one of his buildings in Hong Kong’s bustling Mong Kok district, just blocks from where some of the most violent scenes of unrest have taken place. During the interview, Tang is multitasking, juggling phone calls from brokers, developers and lawyers. He is negotiating his next purchase, a dilapidated building next to the city’s old Kai Tak airport, which the government is auctioning off for redevelopment. To Tang, Hong Kong’s political turmoil is only creating better bargains. “We will move on from this,” he says.
Property is only the latest of Tang’s several incarnations in a career that traces Hong Kong’s own development.
At his side is the youngest of his five sons from two marriages, Stan Tang Yiu-sing, 34, chairman of the holding company he and his father established in 2013 and named Stan Group. Tang Sr., whose title is honorable chairman, remains very involved, and the two meet twice a day. Stan oversees new businesses and redevelopment of properties. Tang still cuts the property deals. “I make the final decisions,” says Tang in a booming baritone that belies his age.
Known in Hong Kong’s real estate circles as “Uncle Bor,” property is only the latest of Tang’s several incarnations in a career that traces Hong Kong’s own development—from neon bulb maker in the 1950s, to 1970s restaurateur, to earning the moniker “shop king” for his string of retail spaces—a foray that almost broke him.
Today, Tang is renowned for his knack of spotting remnants of Hong Kong’s bygone days as a manufacturing hub, its disused factories and warehouses, in areas poised for gentrification. That expertise is attracting eager partners, including Hong Kong’s Chinese Estates Holdings and Yangzhou-based Jiayuan International, which have both set up joint ventures with Stan Group to redevelop its industrial properties. “He’s very effective and experienced in converting these building sites,” says Joseph Lam, associate director of industrial services at Colliers International.
Tang has never feared failure. His father died when he was 5 and he was raised by his mother, who took a low-paying job in a factory to support them. “I had to come up with creative ways to survive,” he says. Tang recalls loitering outside restaurants when he was hungry, waiting for handouts. Growing up poor gave him grit: well into his 70s, he kept in shape with dawn swims beyond the shark net off Hong Kong’s shore. “There’s always a way,” he says. “There’s never a problem that can’t be solved.”
With only a primary school education, Tang became an apprentice in 1950 to an electrician making neon signs, and in his 20s opened his own store catering to then-booming demand for the bright storefront marquees that remain one of Hong Kong’s hallmarks. Neon success enabled Tang in 1970 to open a dim sum eatery with friends. That led to a string of restaurant investments, including a seafood restaurant in Sydney, that Tang would in 1982 consolidate as the East Ocean Gourmet Group, which is still thriving today. The 1980s saw Tang branch out into a flurry of new businesses, including a used car dealership. But it was buying and selling shops where Tang made his mark. “Looking after the restaurant exposed him to news of nearby shops,” says Stan. One of his most notable investments in the following years would be the purchase in 1990 of an old restaurant building that he would transform into the renowned Mongkok Computer Centre.
“I’m optimistic about Hong Kong’s future,” says Tang. “I’ve seen ups and downs. There are opportunities out of risks. This is my chance—my turn.”
By 1997, Tang had amassed more than 200 shops worth roughly HK$7.3 billion ($942 million) and began planning an IPO, only to be thwarted by the Asian financial crisis. Hong Kong’s property market fell 70% between 1997 and 2004 as the crisis was followed by the outbreak of SARS in 2003. By 2004, with HK$4 billion in debt, Tang began selling most of his portfolio, including his prized Mongkok Computer Centre.
What he didn’t sell, however, was a smattering of industrial space he began buying in 1996 to hedge against volatile retail rental yields. And Tang knew just where to buy. Hong Kong had decided in 1990 to close Kai Tak and build a new, larger airport on Lantau Island. So Tang focused on Tuen Mun, a neighborhood directly across a bay from the new airport and connected by road to Hong Kong’s nearest neighbor in mainland China, the fast-growing city of Shenzhen.
Tang starts drawing a rough map: “Let me tell you about the factories on San Hop Lane,” he says as he sketches out the streets and buildings around his first purchase, Tuen Mun’s Oi Sun Centre. Tang bought the former factory in foreclosure for HK$42 million in 2004.
Up the street was Tins Plaza, the retired plastics factory named for its former owner, chemical tycoon-turned-philanthropist Tin Ka-ping. Tang picked up the building in early 2005 for HK$280 million, putting HK$28 million in cash down and borrowing the rest from banks using another of his buildings as collateral.
Six months later, Tang says he received a call from an industrial property unit of Australia’s Macquarie Bank, Macquarie Goodman, offering him HK$500 million for the building. By October, he had a second offer, for HK$520 million, from Singapore property investment fund Mapletree. “But that’s not even the best part,” Tang says.
Faced with rival offers, Tang chose neither. Commercial property commands a higher price than industrial property, he reasoned, so he had Tins Plaza rezoned as commercial. Two years later, Tang found himself in an elevator to Macquarie’s offices in Hong Kong’s International Finance Centre to meet an executive who had flown in from Sydney with a new offer. “The gweilo [foreigner] boss was a handsome man,” Tang says. “He was very straightforward and asked me whether I’d be willing to sell for HK$850 million.” Macquarie in 2008 sold its stake in Macquarie Goodman to its joint venture partner, Goodman Group. Both Macquarie and Goodman declined to comment on the deal.
Tang’s prediction had come true: demand for Hong Kong’s old industrial space had indeed rebounded—not, as he foresaw, because of the new airport, but because of surging demand for the data and fulfillment centers needed to provide cloud services and e-commerce. “There are new technologies like data center users going into warehouses,” says Samuel Lai, senior director at property services firm CBRE in Hong Kong. Tang sold Macquarie Tins Plaza, earning HK$570 million on his HK$280 million investment. “Tins Plaza was the most memorable transaction I’ve ever made,” he says.
But Tang wasn’t resting on his laurels. After seeing the offers roll in for Tins Plaza, he set about buying another former factory down the street, the Gold Sun Industrial Building. Unlike his previous two deals, Gold Sun had several owners, each requiring separate negotiations. Tang bought the first of the building’s eight stories in 2006; he wouldn’t manage to clinch the eighth until 2014. “I bought it floor by floor,” says Tang.
Tang’s timing proved impeccable. Eager to boost the supply of property for offices, hotels and shopping, Hong Kong’s government in April 2010 implemented incentives to redevelop disused industrial properties. The so-called revitalization scheme lifted restrictions on how large a building developers could build on land converted from industrial use. The result: Factory prices surged 152% between the policy’s launch and early 2016, when the government ended the incentive. “The best initiative that came out and led to a lot of transactions was the relaxation on the plot ratio,” says CBRE’s Lai.
Tang got another lift in 2013, when the government announced the start of construction on a tunnel linking the new airport and Tuen Mun. Tang combined his Oi Sun Centre and Gold Sun Industrial Building into a single development, One Vista, a two-tower office building and shopping complex. In May 2018, he bundled One Vista with two other Hong Kong properties and sold roughly 70% to Jiayuan International for HK$2.6 billion.
Tang has left Mong Kok to head downtown to his East Ocean Lafayette restaurant overlooking Victoria Harbor. Nibbling on fried turnip cake dipped in spicy Cantonese seafood sauce, he is closely shadowed by two lawyers sipping tea at the next table and waiting their turn to update him on his deal near Kai Tak. Uncle Bor has already managed to buy 73% of the buildings near the old airport, just 7% away from the threshold at which he can legally compel the remaining owners to sell. Redevelopment of Kai Tak stands to boost property values around the area. And a new revitalization scheme, launched last year, has lifted limits yet again on how big developers can build on converted sites. If and when Tang clinches ownership, he and his partner for the property, Chinese Estate Holdings, will be able to knock down the existing building, and build a new one with 14 times as much saleable space.
“I’m optimistic about Hong Kong’s future,” says Tang. “I’ve seen ups and downs. There are opportunities out of risks. This is my chance—my turn.”
After returning to Hong Kong from university in the U.K. 15 years ago, Stan Tang Yiu-sing opened an ad agency with friends. Soon, though, he was working with his father, Tang Shing-bor, learning the real estate business and building property management and leasing firms. In 2013, he and his father set up Stan Group to integrate the family’s real estate investments with his service offerings. Stan now chairs the group and oversees the conversion of the older buildings his father buys into modern retail and commercial properties.
“Pure property investment is no longer our only single investment direction,” says Stan, who has joined the shift among Asian property executives from asset-focused development into service-oriented offerings—hospitality, co-working spaces and incubation hubs. Stan Group now operates six hotel brands with a combined 3,500 rooms. In 2016 it launched an innovation hub for entrepreneurs, called “The Wave.”
Stan has also steered Stan Group into financial services, a private members’ club, and serviced apartments catering to the elderly. “The government has given us policies that present us an opportunity to reposition ourselves,” Stan says, echoing his father’s confidence in Hong Kong’s future as part of the greater bay area comprising Guangzhou, Hong Kong and Shenzhen. The 34-year-old plans to list five of the group’s companies by 2023, though the property representing 90% of Stan Group’s assets will remain private, he says. Stan says his aim is to grow non-property businesses to someday represent at least half of the group’s total assets.
Pamela covers entrepreneurs, wealth, blockchain and the crypto economy as a senior reporter across digital and print platforms. Prior to Forbes, she served as on-air foreign correspondent for Thomson Reuters’ broadcast team, during which she reported on global markets, central bank policies, and breaking business news. Before Asia, she was a journalist at NBC Comcast, and started her career at CNBC and Bloomberg as a financial news producer in New York. She is a graduate of Columbia Journalism School and holds an MBA from Thunderbird School of Global Management. Her work has appeared in The New York Times, Washington Post, Yahoo, USA Today, Huffington Post, and Nasdaq. Pamela’s previous incarnation was on the buy side in M&A research and asset management, inspired by Michael Lewis’ book “Liar’s Poker”. Follow me on Twitter at @pamambler
An interview with Hong Kong’s richest man, Li Ka-shing. In this interview Li Ka-shing discusses his early interest in business, why cash flow is the most important thing and building his companies, CK Hutchison Holdings and CK Property Holdings. Li Ka-shing also talks of his foundation, Li Ka Shing Foundation, and the philosophy behind it. Like if you enjoyed Subscribe for more:http://bit.ly/InvestorsArchive Follow us on twitter:http://bit.ly/TwitterIA Other great Entrepreneur videos:⬇ Larry Ellison’s in depth interview on his Life and Success: http://bit.ly/LEllisonVid Jeff Bezos on Amazon, Business and Life/Work:http://bit.ly/JeffBezosVid Bill Gates on Business, Microsoft and Early Life: http://bit.ly/BillGatesVid Video Segments: 0:00 Introduction 1:50 Careful with cash flow 2:25 Is cash flow the most important thing? 3:03 How did you educate yourself? 5:13 Beating the competition? 6:27 Yangtze river metaphor 7:33 Management style 8:52 Always half an hour early 10:27 Rich before 30 but unhappy 13:00 Leaving money to a foundation 13:47 Building the Tsz Shan monastery 14:40 Combining western and buddhist influences 17:05 Inequality in Hong Kong 18:47 When are you retiring? 21:46 Will it be the same without you? Interview Date: 29th June, 2016 Event: Bloomberg Original Image Source:http://bit.ly/LiKaShingPic Investors Archive has videos of all the Investing/Business/Economic/Finance masters. Learn from their wisdom for free in one place.
Most everyone has probably heard of Jack Ma and Alibaba. But, few understand the true immensity—and importance—of what Ma, the co-founder and former executive chairman of Alibaba Group, has done. We had a fascinating conversation at the Forbes Global CEO Summit in Singapore, where we discussed what he did at Alibaba, one of the most formidable e-commerce companies in the world, and his future plans and aspirations.
By providing people in China with a powerful online platform to market their products and services with Alibaba, he nourished millions of small businesses — and the cause of free enterprise. Thanks to Ma, countless numbers of Chinese businesses and individuals can obtain loans and other financial services that would otherwise be unavailable from traditional institutions within China. He also enabled small enterprises everywhere, including the US, to easily trade with entities in China.
Having recently stepped down from Alibaba, Ma is moving into philanthropy, big time, to promote entrepreneurship and education, among other things.
Struggling students will take heart at the fact that Ma was a poor student, frequently flunking his exams. Furthermore, his success was not immediate; numerous employers turned him down when he first entered the workforce.
Ma’s story validates Adam Smith’s truth that commerce benefits us all, and free markets are the best poverty fighters ever created.
Steve Forbes is Chairman and Editor-in-Chief of Forbes Media.
Steve’s newest project is the podcast “What’s Ahead,” where he engages the world’s top newsmakers, politicians and pioneers in business and economics in honest conversations meant to challenge traditional conventions as well as featuring Steve’s signature views on the intersection of society, economic and policy.
Steve helped create the recently released and highly acclaimed public television documentary, In Money We Trust?, which was produced under the auspices of Maryland Public television. The film was inspired by the book he co-authored, Money: How the Destruction of the Dollar Threatens the Global Economy – and What We Can Do About It.
For leaders guiding the way, belief in a company is something that is earned and must come naturally for employees. And according to a new study, attracting and promoting more females into leadership roles is the way forward.
Employees respond better to women-led companies
A recent Peakon study found that employees of women-led companies, meaning those with more than 50% female leaders, feel a stronger connection to the company and their products.
When over 60,000 employees were asked the question of “how likely is it that you would recommend [Company Name] products or services to friends and family,” those at women-led companies answered 0.6 points higher than employees at male-led companies.
Women-led companies also answered higher in terms of satisfaction in the company, an important part of being an active, efficient employee.
Female leadership could be a major enabler in driving the company culture, and female-led companies are proven to be better in communicating mission and strategy, and managing more engaged employees.
Why belief in a company and its products is so important
Belief in the company is also strongly tied to the company strategy. When employees believe in the company — the origin, mission, and value the company offers to consumers and clients — they will subsequently have stronger belief in the strategy as well.
According to Roger Dooley, an experience marketer and author, believing in your company and its product makes you more persuasive. Employees with a strong belief in their product will be more able to effectively sell products or services the company offers, and will have a stronger connection to the company itself.
Belief in a company and its values is also critical to employees’ commitment and persistence. Employees with stronger belief in their company tend to be more willing to continue in their hard work when they trust the path the company is moving on.
According to the Harvard Business Review, belief in a company and its goals will enforce motivation throughout all of the employees — both to get work done when needed, and to keep up the same work ethic when it gets harder.
Belief in a company also helps leaders. When your company supports the same goals, it becomes easier to manage and communicate.
In Authentic Happiness, psychologist Marty Seligman writes that employees become their “happiest” selves when they are doing work they find worthwhile. Leaders who are able to motivate others to work towards a communicated, shared goal — and a shared belief in the goal — are able to maintain morale and engagement throughout the employee lifecycle.
Moreover, belief in a company and its goals also creates a feeling of solidarity among employees and their leaders. If at any point there is a disconnect between employees and leaders, it can be mended quickly and easily when there is a strong belief that the company is going in the right direction.
Ari Weinzweig, a founding partner of Zingerman’s Community of Businesses, points out that belief in a business is one of the most productive foundations that employees and leaders can both share. It creates a shared purpose that may otherwise not be found, as most beliefs are formed before a person is even old enough to be in the job force.
Forming a community where there is a belief in a business allows for clearer actions towards the shared belief, and helps everyone’s job within a larger company make sense.
Clearly the research proves that you must care about the belief in your company strategy and its product. But we must not ignore the key component. As Peakon’s study revealed, investing in female leaders will help you bring deeper conviction about the company and its services, and therefore empower your business to grow in a sustainable way.
Why are there so few women leaders? Weaving together scientific research and personal narrative, Alexis Kanda-Olmstead explains why women may be reluctant to take on leadership roles and what we – women and men – can do to disrupt the powerful internal forces that undermine women’s leadership aspirations and confidence. 1. Alexis Kanda-Olmstead leads talent and diversity initiatives at Colorado State University for the Division of University Advancement. Throughout her twenty-year career in higher education, Alexis has worked to help students, faculty, and staff actualize their potential as leaders through self-knowledge, personal empowerment, and service. As a student and practitioner of women’s development, social justice, and organizational psychology, Alexis believes that with grace and humor we can create positive change that benefits everyone. Alexis is a blogger on women’s issues and the founder of AKO Collective, a women’s leadership development company based in Northern Colorado. This talk was given at a TEDx event using the TED conference format but independently organized by a local community. Learn more at https://www.ted.com/tedx
Orlando Bravo discovered his edge early. In 1985, at age 15, he traveled from his home in Mayagüez, Puerto Rico, a small town on the island’s western coast, to Bradenton, Florida, to enroll in the legendary tennis guru Nick Bollettieri’s grueling academy.
Bravo would wake at dawn, head to class at St. Stephen’s Episcopal School, then return to Bollettieri’s tennis courts at noon. He spent hours warring against peers like Andre Agassi and Jim Courier under the broiling sun. At sundown, after an hour to shower and eat, he would study, then retire to a sweaty, two-bedroom condominium in which players bunked four to a room like army barracks. Then he would do it all over again, six days a week, for a full year. “It was the tennis version of Lord of the Flies,” says his former roommate Courier.
The brutally competitive environment helped Bravo climb to a top-40 ranking in the U.S. as a junior. Then he peaked. “It was quite humbling,” recalls Bravo, who’s still fit from his weekly tennis games. “It was a different level of hard work altogether. It became clear I could operate at these super-high levels of pain.”
That grit and perseverance eventually propelled him to the top echelons of the private equity world. Few outside of finance have heard of the 49-year-old Bravo, but he is the driving force behind Wall Street’s hottest firm, the $39 billion (assets) Thoma Bravo.
In February, the French business school HEC Paris, in conjunction with Dow Jones, named Thoma Bravo the best-performing buyout investor in the world after studying 898 funds raised between 2005 and 2014. According to public data analyzed by Forbes, its funds returned 30% net annually, far better than famous buyout firms like KKR, Blackstone and Apollo Global Management. That’s even better than the returns from the software buyout firm Vista Equity Partners, its closest rival, run by Robert F. Smith, the African American billionaire who recently made headlines by paying off the college debt of Morehouse College’s entire graduating class. Since the beginning of 2015, Bravo has sold or listed 25 investments worth a total of $20 billion, four times their cost. His secret? He invests only in well-established software companies, especially those with clearly discernible moats.
“The economics of software were just so powerful. It was like no other industry I had ever researched,” says Bravo, seated in his office in San Francisco’s Transamerica Pyramid. He wears a tailored purple dress shirt and enunciates his words with a slight Puerto Rican accent. “It was just very obvious.”
Bravo’s firm has done 230 software deals worth over $68 billion since 2003 and presently oversees a portfolio of 38 software companies that generate some $12 billion in annual revenue and employ 40,000 people. Forbes estimates the value of the firm, which is owned entirely by Bravo and a handful of his partners, at $7 billion. Based on his stake in the firm and his cash in its funds, Bravo has a $3 billion fortune. Not only does that make him the first Puerto Rican-born billionaire, it’s enough for Bravo to debut at 287th place on this year’s Forbes 400 ranking of the richest Americans.
Like a good tennis player who’s worked relentlessly on his ground strokes, Bravo has made private equity investing look simple. There are no complicated tricks. He figured out nearly two decades ago that software and private equity were an incredible combination. Since then, Bravo has never invested elsewhere, instead honing his strategy and technique deal after deal. He hunts for companies with novel software products, like Veracode, a Burlington, Massachusetts-based maker of security features for coders, or Pleasanton, California-based Ellie Mae, the default system among online mortgage lenders, which the firm picked up for $3.7 billion in April. His investments typically have at least $150 million in sales from repeat customers and are in markets that are too specialized to draw the interest of giants like Microsoft and Google. Bravo looks to triple their size with better operations, and by the time he strikes, he’s already mapped out an acquisition or turnaround strategy.
The pool of potential deals is growing. On public markets, there are now more than 75 subscription software companies, worth nearly $1 trillion, that Bravo can target, versus fewer than 20, worth less than $100 billion, a decade ago. Investors around the world clamor to get into his firm’s funds, and lenders have checkbooks ready to finance his next big deal. “The opportunities today are the biggest I’ve ever seen,” Bravo says. “Right now we are in a huge, exploding and changing industry.”
Orlando Bravo’s isn’t a rags-to-riches story. He was born into a privileged life in Puerto Rico in the Spanish colonial city of Mayagüez, which for decades was the port for tuna fishing vessels supplying the local Starkist, Neptune and Bumble Bee canneries.
Starting in 1945, his grandfather Orlando Bravo, and later his father, Orlando Bravo Sr., ran Bravo Shipping, which acted as an agent for the massive tuna-fishing factory ships entering the port in Mayagüez. It was a lucrative business. His parents moved him and his younger brother Alejandro to what’s now a gated community in the hills of Mayagüez, where the brothers attended private schools and tooled about on the family’s 16-foot motorboat.
After taking up tennis at age 8, practicing on the courts of a local university and a Hilton hotel, Bravo and his family began making the two-and-a-half-hour drive from their home to San Juan on weekends to allow him to train against better competition. “What I loved about tennis was the opportunity,” he recalls. “I’m from Mayagüez, and I’m going to come to the big city and I’m going to make it,” he says. “Let’s go! The underdog!”
He quickly became one of Puerto Rico’s top players, which landed him at Bollettieri’s academy and then on Brown University’s tennis team. “I was so scared I wouldn’t make it through,” Bravo says of the Ivy League, so he took most classes pass/fail as a college freshman. But he quickly found his footing and graduated Phi Beta Kappa in 1992 with degrees in economics and political science. That helped him get a prestigious job as an analyst in Morgan Stanley’s mergers and acquisitions department. There he paid his dues, clocking 100-hour weeks under the renowned dealmaker Joseph Perella.
“I learned I didn’t want to invest in risky things ever again. It was too painful.”
Bravo’s Spanish fluency put him in front of clients as other analysts slaved away in data rooms. Working on Venezuelan billionaire Gustavo Cisneros’ 1993 acquisition of Puerto Rican supermarket chain Pueblo Xtra International opened his eyes to the world of buyouts. But mostly he says he learned he didn’t want to be a banker.
Bravo eventually headed west to Stanford University. He’d already been accepted into its law school, but he also wanted to attend the business school. He called insistently and eventually got accepted to pursue both. He worked during a summer at Seaver Kent, a Menlo Park, California-based joint venture with David Bonderman’s Texas Pacific Group that specialized in middle market deals. Upon graduation in 1998, Bravo wasn’t offered a position there or at TPG, and he spent months cold-calling for a job. After about a hundred calls, Bravo’s résumé caught the eye of Carl Thoma, a founding partner of the Chicago-based private equity firm Golder, Thoma, Cressey, Rauner (now known as GTCR), and they hit it off. “The biggest mistake Texas Pacific made was…that they didn’t make him a job offer,” says Thoma, 71, who Forbes estimates is also a billionaire based on an analysis of public filings.
One of the pioneers of the private equity industry in the 1970s, Thoma is a tall and mild-mannered Oklahoman whose parents were ranchers. Thoma and his partners practiced a friendlier version of the buyouts popularized by Michael Milken, preferring to buy small businesses and expand them using acquisitions. When Bravo came aboard in 1998, Thoma and partner Bryan Cressey had just split from Stanley Golder and Bruce Rauner, who later went on to become governor of Illinois, creating Thoma Cressey. Thoma sent Bravo to San Francisco to hunt for investments and eventually expand the firm’s Bay Area presence.
Bravo’s first few deals, struck before he turned 30, were disasters. He backed two website design startups, NerveWire and Eclipse Networks, just as the dot-com bubble popped. The two lost most of the $100 million Bravo invested. “I learned I didn’t want to invest in risky things ever again,” Bravo says. “It was too painful to live through.” Thoma Cressey was also struggling elsewhere, with underperforming investments in oil and gas and telecommunications. It was among the worst performers in the private equity industry at the time.
“Every time we picked up our heads to peek at a deal that wasn’t software, the software deal looked a lot better to us.”
But the failure led to an epiphany that soon made Bravo and his partners billions. He realized his mistake was in backing startup entrepreneurs, an inherently risky move, when for the same money he could buy established companies selling niche software to loyal customers. With Thoma’s blessing, Bravo pivoted and became an expert on these arcane firms. Coming out of the dot-com bust, the market was littered with foundering companies that had gone public during the bubble and had few interested buyers. Bravo got to work. His first big move, in 2002, was to buy Prophet 21, a Yardley, Pennsylvania-based software provider to distributors in the healthcare and manufacturing sectors that was trading at a mere one times sales.
Rather than clean house, Bravo kept the company’s CEO, Chuck Boyle, and worked beside him to boost profits, mainly by rolling up competitors. When Boyle wanted to buy a company called Faspac, Bravo flew to San Diego to work out of the Faspac owner’s garage for five days, analyzing reams of contracts to see if the deal would work. “Orlando would help not only at the highest level with strategy but also when we got grunt work done,” Boyle recalls. After seven acquisitions, Bravo sold the business for $215 million, making five times his money.
Software quickly became Bravo’s sole focus, and Thoma Cressey began to thrive. By 2005, Bravo and Thoma had recruited three employees, Scott Crabill, Holden Spaht and Seth Boro, to focus on software applications, cybersecurity and Web infrastructure. All remain with the firm today as managing partners.
Bravo’s big opportunity came during the financial crisis when Thoma put Bravo’s name on the door and split with his partner Bryan Cressey, a healthcare investor, creating Thoma Bravo. From that moment on, the firm invested only in software, with Bravo leading the way.
A string of billion-dollar buyouts followed—Sunnyvale, California-based network security firm Blue Coat, financial software outfit Digital Insight of Westlake Village, California, and Herndon, Virginia’s Deltek, which sells project management software—all of which more than doubled in value under Bravo’s watch. The firm’s inaugural 2009 software-only fund posted a 44% net annualized return by the time its investments were sold, making investors four times their money and proving the wisdom of discipline and specialization. “Every time we picked up our heads to peek at a deal that wasn’t software, the software deal looked a lot better to us,” he brags.
It’s late May, and Orlando Bravo’s 20th-floor offices overlooking the San Francisco Bay are filled with dozens of tech executives from its portfolio companies. Folks from Houston’s Quorum Software, which makes technology systems for oil and gas companies, mingle with cybersecurity experts from Redwood Shores, California’s Imperva. They juggle their rollerboard suitcases and thick financial books as Thoma Bravo partners map out corporate strategies on dry-erase whiteboards. Those on break hammer away at keyboards in small workrooms or demolish chicken sandwiches in a no-frills kitchenette.
This is one of Thoma Bravo’s monthly boot camps for new acquisitions, grueling daylong sessions that are critical to its success. Partners regularly buzz into Bravo’s spartan glass-walled offices, while in the background the drilling and hammering of construction workers making room for 13 new associates disturbs the peace.
With a fresh $12.6 billion war chest, Bravo is now eyeing $10 billion-plus deals and expects to begin buying entire divisions of tech giants.
After two decades studying software, Bravo recognizes clear patterns. For instance, when a company pioneers a product, its sales explode and then inevitably slow as competitors emerge. Often a CEO will use this cue to stray into new markets or overspend to gin up sales. Bravo calls this “chasing too many rabbits.” To fix it, he and his ten partners work alongside 22 current and former software executives who serve as consultants. They begin tracking the profit-and-loss statements for each product line and pore over contracts in search of bad deals or underpriced products. Critically, by the time a Thoma Bravo acquisition check clears, existing management has agreed that this rigorous approach will help. Bravo calls it “making peace with the past.”
There are also layoffs. Those can total as much as 10% of the workforce, for which Bravo doesn’t apologize. “In order to realign the business and set it up for big-time growth, you first need to take a step back before you take a step forward. It’s like boxing,” he says. “These are unbelievable assets with great innovators, and they are usually undermanaged.”
Mark Bishof, the former CEO of Flexera Software, an application management company outside of Chicago that Bravo bought in 2008 for $200 million and sold for a nearly $1 billion profit three years later, has a succinct description for this wild success. “He just kind of cuts all of the bullsh*t,” Bishof says. “It’s refreshing.” Flexera’s profits rose 70% during Bravo’s ownership, largely thanks to four major acquisitions. “Orlando’s like the general in the foxhole with his sergeant. You know he’s knee-deep in there with you,” Bishof gushes.
Under Thoma Bravo’s watch, companies on average saw cash flow surge as margins hit 35%, as of 2018, nearly triple those of the average public software company at that time. “It’s like training for the Olympics. . . . You have a finite goal to make it [in year four], and you make it very, very clear,” Bravo says. Today’s roaring market adds potency to the playbook. Lenders are now gorging on software debt, and stock market multiples for these businesses are surging.
“I learned more about building an efficient software company over the last four and a half years than in the first 30 years of my career.”
A recent example is Detroit’s Compuware, a decades-old pioneer of software applications to manage mainframe computer systems. In 2013, this Nasdaq-listed giant was all but left for dead and up for sale. There was minimal interest, other than from Bravo and partner Seth Boro, who were keen on Dynatrace, software that helped companies move databases to the cloud, which Compuware had acquired in 2011. Thoma Bravo used $675 million in cash and raised $1.8 billion in debt to buy Compuware and then split off Dynatrace as a separate company. The pair began to move Dynatrace from selling database licenses, once the bulk of its business, to cloud subscription services, now 70% of sales. This past August, Dynatrace went public, and Thoma Bravo’s 70% stake is now worth over $4 billion, with the remainder of Compuware worth nearly a billion more. “I learned more about building an efficient software company over the last four and a half years than in the first 30 years of my career,” says Dynatrace CEO John Van Siclen.
With a fresh $12.6 billion war chest for its 13th fund raised in 2018, Bravo is eyeing $10 billion-plus deals and expects to begin buying entire divisions from today’s technology giants. But thanks in part to the success of his firm, he now faces more competition. Heavyweights like Blackstone and KKR are increasingly sussing out software deals, not to mention his longtime rival Vista Equity. And he’s not immune to mistakes. Bravo’s $3.6 billion 2015 acquisition of San Francisco-based digital network tracker Riverbed Technology is currently struggling because of slowing sales and too much debt. He isn’t worried. “There are bigger and better companies to fix than there were ten years ago,” Bravo says.
His biggest challenge these days is likely back home in Puerto Rico where it all began. Bravo announced in May that he is contributing $100 million to his Bravo Family Foundation that will be used to promote entrepreneurship and economic development on the island.
This new foundation was birthed by Hurricane Maria, which devastated the island two years ago. Bravo was in Japan raising cash for yet another massive fund and frantically calling San Juan trying to locate his parents, who were living in the capital. They were fine, but the island wasn’t.
Five days later, he flew his Gulfstream jet with 1,000 pounds of supplies—water, granola bars, meal kits, satellite telephones, diapers, intravenous tubes and hydration pills—to Aguadilla, near Mayagüez. When an airport worker opened the door of his plane, Bravo says, the look of fear on his face was unforgettable. “All you could say was ‘I’m sorry for what happened to you.’ ”
He returned two weeks later in a larger plane with 7,000 pounds of supplies. Then he came in a massive DC-10 cargo plane before ultimately chartering two container ships carrying 600,000 pounds. “It was just like cold-calling for deals,” Bravo says of rounding up all the donations. He personally put in $3 million in just the first 30 days, and committed $10 million altogether.
When the Federal Emergency Management Agency became fully operative there, the island’s richest native turned his attention to Puerto Rico’s future. Though 44% of Puerto Ricans live below the poverty line, Bravo believes in the potential to foster entrepreneurship, citing that a tenth of the population has tried to build a business.
Armed with his money, his foundation is looking to back Puerto Rican technology entrepreneurs, even ferrying them to Thoma Bravo’s offices for training. Bravo admits to being tired of the debate over Puerto Rico’s statehood and holds his tongue when asked about President Trump’s performance during Maria. “My passion, which is the same as with companies, is to move beyond the strategic, long-term pontification, and into the operational and tactical moves that make you move forward today,” he says. “Economies go down, companies miss their numbers, trade stops, product issues happen and people quit. [The question is] do you have a creative approach to problem solving?” Bravo says. “Some people are stuck . . . and some people love putting the pieces together. I just feel like every operational problem can be solved. There’s always a solution.”
Recommended: Read Forbes’ Other Dealmaking Cover Stories
I’m a staff writer at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, M&A and banks. I’m a graduate of Middlebury College and the Columbia University Graduate School of Journalism, and I’ve worked at TheStreet and Businessweek. Before becoming a financial scribe, I was a part of the fateful 2008 analyst class at Lehman Brothers. Email thoughts and tips to email@example.com. Follow me on Twitter at @antoinegara
Orlando Bravo, managing partner of Thoma Bravo and founder of the Bravo Family Foundation, https://www.bravofamilyfoundation.org/, announced he personally will contribute $100 million to his foundation to promote entrepreneurship and economic development in Puerto Rico, where Bravo was raised, and his family still lives.
Vail Resorts, a publicly traded operator of ski resorts, announced on Monday it would acquire Peak Resorts for $11 per share, all cash, which is more than double its $5.10 per share closing price, one day prior to the announcement. Peak Resorts operates 17 ski resorts, mostly in the Northeast and Midwest, including Alpine Valley in Ohio and Hunter Mountain in upstate New York.
One major beneficiary of the acquisition: the Sacklers, the family behind Purdue Pharma, the manufacturer of pain drug OxyContin. According to Peak Resorts’ latest annual proxy from October 2018, its largest shareholder is CAP 1 LLC, a company wholly owned by Sackler brothers Richard and Jonathan.
The Sacklers’ nearly 40% ownership stake, which includes preferred stock and stock warrants, is worth about $87 million based on the transaction. Some of the shares are owned by the charitable Sackler Foundation. The Sacklers became investors in Peak Resorts as early as August 2015.
Richard is the former chairman and president of Purdue Pharma. His brother, Jonathan, is a former board member. Nearly every state has filed lawsuits against Purdue Pharma and its owners, including eight Sackler family members, alleging the company caused a nationwide public health crisis around opioid addiction and opioid overdose deaths. One lawsuit alleges that Purdue Pharma had brought in more than $35 billion in revenues since 1995.
The Sacklers, worth an estimated $13 billion based largely on the value of Purdue Pharma, built their fortune primarily through sales of OxyContin, a highly addictive painkiller that has been called by the medical establishment one of the root causes for the nationwide opioid addiction epidemic.
Purdue Pharma owns the patent for OxyContin, and is the only manufacturer of the drug. According to Symphony Health Solutions, a healthcare and pharmaceutical data analytics company, roughly 80% of Purdue Pharma’s sales come from OxyContin. Due to the widespread rise in use of prescription and nonprescription opioids, the U.S. Department of Health and Human Services declared the opioid crisis a public health emergency in 2017.
The family used to be known for being generous benefactors of museums and universities worldwide, but their moniker has lost its luster. The Metropolitan Museum of Art in New York City announced in May it would turn down money from the Sackler family, though it will still carry the family name in the Sackler Wing. In July, the Louvre Museum in Paris reportedly removed the Sackler name from its Sackler Wing of Oriental Antiquities.
A Berkshire Hathaway shareholder arranges her shopping next to a large drawing of Chairman and CEO Warren Buffett, during a shareholders shopping event in Omaha, Neb., Friday, May 3, 2019, one day before Berkshire Hathaway’s annual shareholders meeting. An estimated 40,000 people are expected in town for the event, where Chairman and CEO Warren Buffett and Vice Chairman Charlie Munger will preside over the meeting and spend hours answering questions. (AP Photo/Nati Harnik)
Berkshire Hathaway’s shareholders’ meeting as in past years yielded various insights on Warren Buffett’s and Charlie Munger’s insights on the markets, politics, tech stocks, past mistakes and many other topics.
Further Buybacks On The Cards
It should come as no surprise that Buffett and Munger are considering further buybacks of Berkshire stock. With a large, and growing, cash pile and limited deal opportunities to date, they are likely to use cash to repurchase Berkshire shares as the fallback option. In fact, the pair used answers to certain questions, such as regarding Brexit in the U.K. to remind the audience that they are very willing to make acquisitions in Europe should they see the right deal at the right price. They feel that Berkshire is typically considered for deals in the U.S.. Yet, internationally they have more work to do to have Berkshire in consideration for a large business sale. Still, the emphasis on buybacks suggests that there is little in the deal pipeline for now, though of course that could change quickly. Buffett and Munger would love to see more attractive deals, but absent attractive opportunities, stock buybacks are the default.
Another Bite Out Of Apple?
Buffett and Munger were both very positive on current holding Apple, and Apple CEO Tim Cook was also at the event. It seemed clear that Buffett was quite willing to up his Apple stake at the right price.
Various objections such as potential regulation of Apple’s app store were raised in questions, though Buffett didn’t dismiss those concerns entirely, he mentioned that what has hurt the most is that the stock has gone up. That, the CEO’s presence and the fact that Buffett didn’t go out of his way to make the detailed bull case on Apple all suggest he make be angling to up his stake at the right price, even though Apple is currently Berkshire’s second largest public holding behind Coca-Cola.
A More Flexible Approach To Value Investing
Over his lifetime, Buffett’s investing approach has evolved and it continues to. In his early years, Buffett loved buying so-called cigar butt stocks, as popularized by his early mentor Ben Graham. This means stocks that may have been poor companies, but were trading well below the value of assets that could be sold realizing a profit for investors. Such deals are harder to come by now. As such Buffett looks more for great businesses at reasonable prices, a direction that Munger has clearly prodded him in. However, now Buffett talks of value investing in broader more creative terms, such that any stock where the likely expected cashflows exceed the price can be attractive, even if not cheap in on the traditional metrics and ratios associated with value investing.
So though Buffett’s approach continued to be refined, its core principles remain the same in looking for great businesses at attractive prices with sound management in place. In reviewing Buffett and Munger’s comments, one is left with the feeling that they are seeing few bargains in this market and buybacks paired with watching and waiting for certain key holdings such as Apple to fall so they might add more is the current strategy. Aside, from the comments at the meeting, the fact that the company is sitting on over $100 billion of cash and short-term securities at the end of 2018 reinforces that Buffett and Munger aren’t seeing the opportunities they would hope for in the current environment.
Articles educational only, not intended as investment advice.
(Update 10.16 a.m., ET) – France’s leading billionaires and companies have rallied to pledge $670 million (€600 million) to restore Paris’ Notre Dame Cathedral following a devastating fire on Monday evening.
Francois-Henri Pinault, chairman of Kering (the parent company of Gucci), and his billionaire father, Francois Pinault, announced on Tuesday they would donate $113 million (€100 million) via their family investment company, Artemis. The Arnault family, owners of luxury goods group LVMH, also pledged $226 million (€200 million) after French President Emmanuel Macron called for donations to rebuild the French national icon.
“The Arnault family and the LVMH Group, in solidarity with this national tragedy, are committed to assist with the reconstruction of this extraordinary cathedral, symbol of France, its heritage and its unity,” the family said in a statement.
“This tragedy is striking all the French people, and beyond that, all those attached to spiritual values,” Francois-Henri Pinault said in a statement. “Faced with this tragedy, everyone wishes to give life back to this jewel of our heritage as soon as possible.”
French charity Fondation du Patrimoine has launched an international appeal to raise funds for the UNESCO World Heritage site that was partially destroyed in Monday’s fire. Patrick Pouyanné, chief executive of Total, tweeted the French oil giant would contribute $113 million (€100 million) to the fund.
Billionaire Henry Kravis, cofounder of private equity group KKR, and his wife, Marie-Josée Kravis, also announced on Tuesday that they planned to donate $10 million towards the rebuilding.
Paris Mayor Anne Hidalgo thanked firefighters for their work saving the cathedral’s famous bell towers and announced plans for a “major international conference of donors” to raise funds for the rebuilding work. Hidalgo also said Paris already had $90 million (€80 million fund) for the restoration of the city’s churches
Anyone can survive the short-term fear of a roller coaster. Not everyone can endure the stress of entrepreneurship. Entrepreneurship isn’t like a ride or a game, where there is a finite ending to the experience. The stress and fear of entrepreneurship is pervasive, persistent, and cumulative over time. Chronic stress negatively impacts both our physical and mental well-being, and it severely hampers our decision-making abilities……