When Baring Private Equity Asia delisted Nord Anglia Education in London in 2008, the company had six schools, about 2,000 students and $10‐15 million in EBTIDA. Fast forward eight years and the business had grown to 43 schools, 37,000 students and more than $200 million in EBITDA.

Nord Anglia represents the private equity firm’s most successful investment to date in US dollar terms, yet it remains part of the portfolio. In 2017, three years after relisting the company in the US, Baring privatized it once again in a $4.3 billion transaction with the support of an investor syndicate. Baring’s sixth fund took out positions held by its third and fourth funds with carried interest plowed back into the deal.

Anyone looking for a single investment that captures the transformation of Baring from a bit‐part player with a $25 million fund into a multi‐strategy, pan‐regional buyout manager overseeing $20 billion in assets – and the ambition of the individual that guided the firm there – Nord Anglia is it. The investment features several of what have become Baring’s hallmarks: the pursuit of control at scale, cross‐border expansion, bolt‐on acquisitions, and conviction built on domain knowledge.

Nord Anglia’s most recent return to private ownership may also offer insights into how the firm thinks about the future and what PE investors must do to stay relevant in a changing environment. While the introduction of a permanent capital strategy that facilitates longer‐duration holds is not currently under consideration, it is certainly not being ruled out.

“If you are big pension fund and you have billions of dollars in private equity, you are getting all this money back and you must redeploy it in new assets, probably at higher multiples. Why do that? Holding on to assets longer, letting them compound in value is a natural thing to do,” says Jean Eric Salata, Baring’s CEO and founding partner. “As people become more comfortable with the asset class, they will appreciate that liquidity for the sake of liquidity doesn’t make sense. We will see longer pools of capital or different vehicles set up.”

Entrepreneurial instincts

Salata was not an obvious choice as head of one of Asia’s largest indigenous private equity firms. Nor, for at least the first third of its life, was there much indication of Baring’s impending preeminence. Salata was born in Chile, the grandson of a generation of Austrian, Polish and German emigres who fled Nazism in the 1930s. Aged five, he moved to Erie, Pennsylvania. Salata’s father was an architect and his brother entered the same profession, but his preference for business and finance was apparent from a young age.

“I started investing in the stock market when I was 12 or 13. I had a paper route when I was a kid, earning $25‐30 a month, and I would save up and buy stocks. I was always interested in how you can compound money. And I was fascinated by the idea of being an entrepreneur and building a business,” Salata recalls.

A bachelor’s degree in finance and economics at the University of Pennsylvania led to a position with Bain & Company. Initially based in Boston, Salata was keen to become more involved in the international side of the business and reached out to the team in Hong Kong. At the time, Bain had three consultants, one client and no office in the territory. But for Salata, professional advancement was not the only imperative: his girlfriend from university – now his wife – is a Hong Kong native.

From his arrival in 1989 through the mid‐1990s, Hong Kong was busy establishing itself as an entrepot for mainland China. GPs were starting to spend more time on the country as Hong Kong manufacturers moved factories to Guangdong province and foreign corporates experimented with mainland entry strategies.

Salata gained his first insights into the asset class within Asia through George Raffini, who was briefly a colleague at Bain before moving to HSBC’s regional private equity business. “Private equity in those days was more like growth capital. It was a great way to meet interesting entrepreneurs and companies that were growing. The more I learned about it, the more excited I became, and I started figuring out how I could get into that field,” Salata says.

Business school was the obvious path, but Salata turned down a place at Harvard in 1991 on being offered a job with AIG making off‐balance‐sheet investments across the region. Early activities included setting up the China‐China‐Foreign (CCF) joint ventures through which overseas telecom operators helped finance the buildout of China Unicom’s mobile network.

These deals were ultimately canceled by Beijing, which insisted that assets such as networks and carriers were off‐limits to foreign investors, but it did stipulate that the internet and related services would be subject to less rigorous oversight. This led to the creation of the variable interest entity (VIE) structure, and in 2000 Sina.com became the first Chinese technology company to list on NASDAQ. A year earlier, China.com completed a red chip listing in Hong Kong.

Making minority investments in Chinese companies and guiding them to Hong Kong IPOs would become a lucrative exit route for PE investors – and for Salata in particular – with 150 offerings between 2004 and 2010. There were less than a handful in the five years before that.

Near-death experience

However, the late 1990s and early 2000s were still characterized by uncertainty. Salata and two more senior colleagues from AIG were tapped to lead an Asia unit of Baring Private Equity Partners, with parent company ING set to provide $300 million in seed funding. The two colleagues pulled out at the last minute and then ING downsized its commitment to $25 million, citing the aftereffects of the collapse of Barings Bank and the mounting Asian financial crisis.

Salata recruited a skeleton team and started deploying the capital, backing Chinese online gaming platform NetEase and Indian outsourcing player Mphasis, among others. Both investments were wildly successful, enabling the newly formed Baring Asia to raise $300 million for its debut fund in 1999. This was followed by a second tranche of $258 million in 2000. Around the same time, management completed a buyout of the business, negotiating to keep the name and the ING relationship in return for a slice of the economics over a limited period.

Baring Asia was among the first in a wave of Asia spinouts from global private equity operations, and at 34, Salata was precociously young to be leading such an effort. “In a way, you have a lot less to lose at that age, so you are more willing to take risks,” he says. “I’d just gotten married; I didn’t have kids yet. I had this entrepreneurial urge, I was able to see a path forward, and everything lined up.”

Only it didn’t, or at least not yet. Baring went through a near‐death experience almost immediately as the dotcom bubble burst, prompting a global recession, a pullback in valuations, and a lack of liquidity. A turning point came in 2002 when Salata took the 12‐strong team to Berkshire Hathaway’s annual general meeting. (He has been an avid follower of Warren Buffett since his 20s, admiring the latter’s even temperament and keep‐it‐simple approach.)

There, in a basement room of a Marriott in Omaha, Nebraska, the team spent an entire day thrashing out a new strategy. Opportunism and early‐stage bets were replaced by a focus on providing capital for high‐growth companies with a clear path to IPO. “That has been one of the keys to our business – not standing still, not being complacent, not just carrying on doing what we’ve always done, but asking what we should be doing different to stay competitive,” Salata says.

This laid the ground for Fund III, a $490 million vehicle that is generally acknowledged as one of the best performers of its vintage globally. It wasn’t just the 5‐10x multiples Baring generated from the likes of AirTac, Sichuan Hidili Industry, and Minth Group as the speed with which they came. According to LP filings, the multiple was 2.3x and the IRR more than 52%.

This triggered a fundraising streak that has yet to end. Baring scaled up to $1.52 billion for Fund IV and closed its seventh vehicle at the end of last year with commitments of $6.5 billion. A real estate vertical was introduced in 2013, with nearly $1.4 billion now under management across two funds. More recently, Baring has entered India’s credit space and a broader push into direct lending opportunities in Asia is expected to follow.

Nord Anglia underpinned the Fund IV story as Baring began to move from a 50‐50 split between growth and buyout to 90% buyout. The emergence of more control investment opportunities was one contributing factor, but there was also a recognition that pre‐global financial crisis growth equity strategies were losing traction. It was difficult to drive change and secure exits in companies controlled by founders conditioned for top‐line growth rather than bottom‐line improvements.

Salata admits that, if anything, Nord Anglia came too early. Baring had to underwrite the full $400 million privatization – from a $1.52 billion fund – and the debt portion of the deal closed marginally before Lehman Brothers collapsed. “We had a bit of a problem on our hands initially, but we learned a lot from it: how you can take a company private, give it a longer time horizon for growth, and drive strategy and operational change,” he says. “At the same time, we learned a lot about the sector.”

Education is now one of the handful of sectors Baring concentrates on, alongside healthcare, IT and business services, financial services, consumer, and advanced manufacturing. Nord Anglia was also instructive in the formation of a blueprint for cross‐border transactions as a predominantly China and UK‐based business went global. Baring continues to distinguish itself from its peers through a willingness to look at deals with an Asia nexus that applies inside or outside the region.

Investor turned manager

As Baring’s headcount has swelled to 180, Salata’s role has inevitably evolved, with greater emphasis placed on management than investment. He is still involved in deal‐making – especially towards the latter stages of transactions when Baring and its counterparties ultimately must take a leap of faith in one another – but at least one‐quarter of his time is spent on team development. Four months ago, this involved giving presentations at US business schools as part of an on‐campus recruitment drive. Last Sunday, it meant spending two hours interviewing a prospective senior operational hire.

For guidance on how to be a better CEO, Salata reads, a habit he encourages throughout the firm. “You need to sit back from the world of responding to emails every second and having that dictate the way you spend your time. It is important to read, to understand how different businesses are working, whether you read annual reports, earnings results or books about how people approach the world of investment,” he says. “I read at least a book a month, plus lots of articles and reports.”

Recent inspiration has come from writings by and about Alan Mullaly, the former Boeing CEO who went on to lead Ford Motor back from the brink of bankruptcy in the late 2000s. He has since become an advisor to Baring. Salata found he could identify with Mullaly’s credo of the CEO as facilitator – an individual who brings teams together, oils the parts and lets them fly rather than attempting to serve as the fount of all wisdom.

To this end, Mullaly advocates a collegial and transparent management process built on open communication and regular business plan reviews. “There is a great saying, ‘You can’t manage a secret,’” Salata observes. “If people are trying to hide problems or prevent bad news from leaking out because they fear it will harm their careers, that’s completely the wrong way, especially in an investment organization.”

He has sought to replicate this approach at Baring, resulting in a highly protective attitude towards the firm’s culture. Recruits must demonstrate intellectual rigor, financial acumen, passion and perseverance, but another set of arguably more subjective criteria must also be met. Baring prioritizes collaboration, humility and entrepreneurialism. Salata points to the relative stability of the team, especially at senior levels, and the track record of promotion from within as evidence that being picky pays off.

“As CEO, you are a coach more than anything else. Your job is to ensure you have the right people in the right seats,” he adds. “People want to feel part of a winning team. Success helps. There is always some reticence on the part of LPs when you raise a larger fund. You need to make sure you can invest it well – that’s table stakes – but there’s an added benefit in that it motivates the organization and enables you to grow the firm. You can promote people, compensate people, retain people.”