13. The Greatest Investor China Doesn’t Know

Reprinted from Cai Fu Tang December 1, 2010

I teach investment classes at Peking University in Beijing and Cambridge University in the UK, and I like to start the classes with a quick quiz on famous investors.  Without fail, executives and MBA students from China always know the strategies of Warren Buffett and George Soros – and a few can even identify Buffett’s teacher Ben Graham by his photo alone (something few Americans can do).  But I find there is always one investor that seems to be completely unknown in China, global real estate guru Tom Barrack.

Los Angeles-based Tom Barrack is arguably the world’s greatest real estate investor.  And given Chinese investors’ obsession with real estate, it’s a little surprising he is not widely studied here (although I suspect he is studied in Wenzhou).  In Asia, he is best known as the man who bought spent nine years convincing the Singapore government to sell him the Raffles hotel chain for $1b.  In Japan he is known as the man who bought the Fukuoka Dome, Japan’s major stadium.  And globally he is known as the man who bought Michael Jackson’s house.

Since its’ founding in 1991, his private investment firm, Colony Capital, has invested over $45 billion in over 12,000 assets worldwide.  Besides being big, Colony is generally regarded as one of the smartest private equity firms focused solely on real estate.  It’s the kind of firm that other good investors listen to.

Barrack’s philosophy is similar to Warren Buffett’s. He is mostly hunting for value that others don’t see.  His purchase of the Japanese stadium was based on a calculation that the titanium in the roof was worth more than the selling price.  His strategy is about getting a cheap entry price (relative to value) on a handful of investments, not moving lots of money and taking a yield.

He avoids the crowds and goes where most others aren’t looking.  He hunts around the world for deals nobody else is seeing.  He purchased 55% of Mars Entertainment, the leading movie theater chain in Turkey.  He purchased 10% of Megaworld Corporation, a development company based in Manila.  He has even purchased private hospitals in Switzerland and pub companies in the UK.  His 2005 announcement that he was exiting the US real estate market due to too much capital chasing real estate appears, in retrospect, exceptionally smart.

If “buy it cheap” is strategy #1, “buy it cheap and fix it up” is #2.  Everyone who has ever bought a house, fixed it up and sold it knows this strategy.  And if you operate across industry classes (hotels, resorts, casinos, apartments, etc.), there is a lot of room for such creativity.  He buys old famous hotels, including the Savoy in London, and refurbishes them.  He has developed luxury resorts in emerging markets.  He has bought hotels or residential complexes and turned part of them into service apartments.  He has bought casinos and fixed their management.

I started following his deals about 8 years ago due to his work with my boss at the time, Prince Waleed.  They had partnered on quite a few famous investments, most recently the merger of Fairmont and Raffles to create a $5.5 billion luxury hotel chain.  This was another example Barrack’s “buy it and fix it up”, but through mergers.

Although what really caught my attention about Tom Barrack was his crazy global lifestyle.  He travels almost continually, often in a different a city or country every three days.  He lives between Asia, Europe and the US.  He is comfortable doing investments everywhere in the world.  This sort of global strategy and lifestyle struck as the right approach and level of ambition for a global age.  I have built my own lifestyle in similar global fashion; living in New York and Shanghai, investing globally and teaching in Beijing and Cambridge.

However, Tom Barrack’s most important lesson for rising Chinese investors might be ambition.  He has left a clear roadmap for how one ambitious person in one lifetime can build their own global empire.

Leave a Reply