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Asia’s Private Equity News Source avcj.com February 28 2017 Volume 30 Number 08
EDITOR’S VIEWPOINT Back office tasks for Asia PE are a balancing act Page 3
NEWS AirTree, Bain, Boyu, CDC, CyberAgent, Hillhouse, IDFC, IDG, IFC, INCJ, Kickstart, Kejora, KKR, Manipal, MBK, Permira, Sequoia, Temasek Page 4
FUNDS Odyssey brings together Australian PE veterans Page 12 Relationship building pays off for ChrysCapital Page 13
LP INTERVIEW Untangle the PIPEs Tsinghua University Education Foundation Indian GPs make the case for investing in the country’s public markets Page 7 Page 15
FOCUS DEAL OF THE WEEK
PE pays its respects Muscling to the top GPs make inroads in Asia funeral services Page 10 Navis-backed start-up in fitness merger Page 13 16th Annual Private Equity & Venture Forum
China15-16 March2017 2017 • Beijing GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY Now in its 16th year, the AVCJ Private Equity and Venture Forum - China is the premier gathering of the China’s most influential private equity GPs and LPs, government regulators, senior corporate executives and other professionals. REGISTER Join and connect with 360+ industry professionals for two days of thought- NOW! provoking debate, in-depth discussion on market trends, networking and more.
HEADLINE SPEAKERS
Jiming Ha Ou Wang Patrick Zhong Vice Chairman and Managing Director and Head Chief Investment Officer Chief Investment Strategist of Private Equity Investment WANDA GROUP GOLDMAN SACHS PRIVATE Department, CHINA WEALTH MANAGEMENT CHINA INVESTMENT CORPORATION
CONFIRMED SPEAKERS INCLUDE: Edward J. Grefenstette Jonathan Zhu David Wei President & Managing Director Chairman and Chief Investment Officer BAIN CAPITAL Founding Partner THE DIETRICH FOUNDATION VISION KNIGHT CAPITAL
Julian Cheng Dave Brochet Jeffrey Li Co-head of China Managing Director Managing Partner WARBURG PINCUS CDPQ ASIA PACIFIC TENCENT INVESTMENT PTE LTD
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Join your Join our peers WeChat for latest avcjchina.com #avcjchina AVCJ Feeds 16th Annual Private Equity & Venture Forum EDITOR’S VIEWPOINT [email protected] China15-16 March2017 2017 • Beijing GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY Managing Editor Now in its 16th year, the AVCJ Private Equity and Venture Forum - China is the Tim Burroughs (852) 2158 9661 premier gathering of the China’s most influential private equity GPs and LPs, Associate Editor Information issues Winnie Liu (852) 2158 9663 government regulators, senior corporate executives and other professionals. REGISTER Staff Writer Join and connect with 360+ industry professionals for two days of thought- NOW! Holden Mann (852) 2158 9646 provoking debate, in-depth discussion on market trends, networking and more. Justin Niessner (852) 2158 9678 Design FOR MOST FUND ADMINISTRATORS, A office and front office reporting – systems that Edith Leung, Mansfield Hor HEADLINE SPEAKERS desired business evolution scenario for Asia – and slice and dice portfolio specific data to show how Rana Tang principally China – is as follows: A GP raises two capital from a particular LP has been allocated Events Jiming Ha Patrick Zhong or three funds, relying solely on friends-and- across different deals, geographies and sectors? George Sengulovski, Ou Wang family money at first and adding a sprinkling of Anecdotal evidence suggests many GPs find Vice Chairman and Chief Investment Officer Jessie Chan, Jonathon Cohen, Managing Director and Head institutional capital later on. Fund IV involves a these costs harder to justify. Chief Investment Strategist of Private Equity Investment WANDA GROUP Sarah Doyle, step up in size, and hopefully in LP quality as well, Asked whether they were planning to Amelie Poon, Fiona Keung, GOLDMAN SACHS PRIVATE Department, CHINA WEALTH MANAGEMENT CHINA INVESTMENT CORPORATION and the back office requirements reach the point modernize and develop their internal processing Jovial Chung, where there is no desire to continue performing in 2017, 30% of Asian respondents answered Marketing these functions in house. So the GP outsources in the affirmative, compared to 60% in the Agrina Sandri, Priscilla Chu, CONFIRMED SPEAKERS INCLUDE: these services to an administrator. Americas and 55% in EMEA. Peculiarly, the 2016 Yasna Mostofi Beyond areas such as custodian services, to figure for Asia was 50%, roughly in line with Edward J. Grefenstette Jonathan Zhu David Wei outsource or not to outsource is traditionally other markets. In another part of the survey, Research Amy Wu, Helen Lee, President & Managing Director Chairman and viewed in the context of size, resources and habit. Asian GPs indicated they saw less of a challenge Chief Investment Officer BAIN CAPITAL Founding Partner Herbert Yum, And outsourcing is generally on the rise in Asia, in LP communications than their Americas and THE DIETRICH FOUNDATION VISION KNIGHT CAPITAL Kaho Mak, Tim Wong as investor bases become more international, EMEA counterparts. Investment opportunities, investors seek larger amounts of information fundraising and market regulation are by some Sales from managers, and greater regulation adds distance their biggest concerns. Anil Nathani, Darryl Mag, Debbie Koo, weight to the administrative burden. LP respondents were also less worried Julian Cheng Dave Brochet Jeffrey Li Samuel Lau, The 2017 edition of fund administrator about GP-LP communications than other Co-head of China Managing Director Managing Partner Gavin Lam, Pauline Chen WARBURG PINCUS CDPQ ASIA PACIFIC TENCENT INVESTMENT Augentius’ annual global survey of private issues, although their biggest administrative PTE LTD equity fund managers appears to confirm this frustrations are lack of transparency around fees, Subscriptions trend. Across compliance, fund administration, late reporting and insufficient detail in reporting. Jade Chan, Karina Ting regulatory reporting, taxation and legal services, The latter two have separately been described Sally Yip Keep up-to-date with confirmed speakers at avcjchina.com the percentage of Asian respondents expressing as areas in which some LPs – attitudes can vary Publishing Director a willingness to outsource is not particularly considerably – are likely to give Asian GPs a break, Allen Lee Registration enquiries: Sponsorship enquiries: out of step with the Americas and Europe, the prioritizing market access over seamless delivery Middle East and Africa (EMEA). Indeed, in all of information. It remains to be seen how long Anil Nathani T: +852 2158 9636 Darryl Mag T: +852 2158 9639 bar fund administration, Asian managers have this lasts. Hong Kong Headquarter Enquiry E: [email protected] E: [email protected] more intent to outsource than their EMEA Suite 1602-6 Grand Millennium Plaza counterparts. 181 Queen’s Road Asia Series Sponsor Co-Sponsors But how far are private equity firms in Central Hong Kong this region willing to go in order to deliver Tim Burroughs T. (852) 2158 9700 consistency, standardization and automation? Is Managing Editor F. (852) 2158 9701 E. [email protected] there, for example, growing demand for middle Asian Venture Capital Journal URL. avcj.com
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Join your Join our peers WeChat for latest Number 08 | Volume 30 | February 28 2017 | avcj.com 3 avcjchina.com #avcjchina AVCJ Feeds NEWS
Permira-owned Sushiro bike rental services start-up, while existing GLOBAL backer Hillhouse Capital has also re-upped. The targets $728m IPO investment follows a $215 million Series D round Bilden withdraws from Sushiro Global Holdings, a sushi restaurant chain led by Tencent Holdings and Warburg Pincus in majority-owned by Permira, is looking to raise up early January, and a strategic investment from navy secretary nomination to JPY82.4 billion ($728 million) through an IPO Taiwan-based manufacturing giant Foxconn Philip Bilden, the former Asia head of in Tokyo. The company plans to sell up to 21.1 Technology Group weeks later. HarbourVest Partners, has withdrawn himself million shares at an indicative price of JPY3,900 from consideration to be US navy secretary. apiece, for a valuation of JPY107 billion overall. KKR invests in Gambol Pet Bilden said he would be unable to satisfy the Permira intends to offload 18.9 million shares ethics requirements “without undue disruption in the offering, generating proceeds of JPY73.7 Group and materially adverse divestment of my family’s billion and taking its stake from 94.7% to 30.9%. KKR has invested in Gambol Pet Group, a private financial interests.” China-based pet food product company. The commitment came through KKR’s $1 billion K2 Global raises $183m for China Growth Fund. Gambol is one of the largest pet food exporters in China, supplying products US-Asia VC fund including dry food, wet food, real meat jerky K2 Global has raised $183 million for its debut treats and dental bone to overseas markets. venture fund, which aims to promote cross- border development in Asian and US technology PE-backed SF Express lists start-ups. The vehicle will focus on mobile, e-commerce, financial technology, augmented in Shenzhen and virtual reality, artificial intelligence, China’s largest express delivery services provider autonomous vehicles and machine learning. SF Express, which is backed by several PE investors, has completed a backdoor listing in The GP bought Sushiro from Unison Capital Shenzhen that values the business at RMB43.3 AUSTRALASIA in 2012 at a valuation of approximately EUR895 billion ($6.6 billion). The publicly-traded shell million ($946 million), including debt. At the time, company, Maanshan Dintai Rare Earth & New Bain makes partial exit Sushiro had 335 restaurants in Japan and had just Materials, has been renamed SF Holdings. entered Korea. Permira said in its 2012 annual The backdoor listing plan received regulatory from MYOB report that the number of restaurants in Japan approval in December. Bain Capital Private Equity has made a partial exit alone could at least double, with plans to open from Australian accounting software developer around 30 new outlets a year. Meituan-Dianping launches MYOB, reducing its holding from 56.25% to The company is the one of the market approximately 39.1%. The GP sold 100 million leaders in the revolving sushi restaurant space, consumer fund shares. Based on the February 22 closing price offering food of consistently high quality at a Meituan-Dianping, a China-based online-to- of A$3.56, it would have generated proceeds of lower price point compared to traditional sushi offline (O2O) services platform created through A$356 million ($274 million). establishments. As of September 2016, the the merger of two rival groups, has launched company had 442 restaurants in Japan and six in a RMB3 billion ($436 million) fund that will Hostplus commits $65m to Korea. It expanded into the US last year. make early-stage consumer sector investments. Meituan-Dianping is an anchor LP in the fund, Artesian which is targeting RMB1.5 billion for its first close. Australian superannuation fund Hostplus has GREATER CHINA committed A$85 million ($65 million) to local Bike-sharing start-up seed investor Artesian. The VC firm now has Bluegogo gets $58m more than A$150 million under management GPs join $1.53b financing across fixed income funds focusing on corporate Chinese bike-sharing start-up Bluegogo has bonds, a range of venture funds, and an equity round for iQiyi raised a RMB400 million ($58 million) round – at crowdfunding platform. Chinese video-streaming platform iQiyi.com a valuation of RMB1 billion – led by Black Hole has raised $1.53 billion from investors including Capital. Zhineng Xingtong, a Shenzhen-based AirTree leads $19m Hillhouse Capital, Boyu Capital, Run Liang Tai medical device developer, also participated. Fund, IDG Capital, Everbright-IDG Industrial Fund Bluegogo was launched in November by SpeedX, investment in Prospa and Sequoia Capital. iQiyi’s owner Baidu invested a smart road bike manufacturer. AirTree Ventures has led a A$25 million ($19.2 $300 million. million) investment in Australian financial IDG Capital backs technology company Prospa. The investment is Temasek, Hillhouse invest said to value Prospa at A$235 million. The capital CreditEase’s insurance unit will go towards a doubling of the 120-strong staff in Mobike CreditEase Insurance Agency, an insurance as well as supporting technology development Singapore’s Temasek Holdings has made a unit of China’s CreditEase Wealth Management, and expand product distribution. strategic investment in Mobike, a Chinese smart has raised RMB80 million ($12 million) from
4 avcj.com | February 28 2017 | Volume 30 | Number 08 NEWS
investors including IDG Capital through a private IDFC exits Essar Power for million fund targeting healthcare investments placement on the National Equities Exchange in emerging markets. The vehicle will target and Quotations (NEEQ). IDG has invested RMB15 $87.1m companies offering non-hospital services, million in the firm through two entities, while IDFC Alternatives has fully exited its stake in primarily in South Asia and Africa. CreditEase New Financial Industry Investment Indian power plant operator Essar Power for Fund committed RMB65 million. INR5.8 billion ($87.1 million). IDFC CEO and IFC considers $100m solar Managing Partner M.K. Sinha told AVCJ that the investment P2P car rental site Atzuche deal, which closed earlier this month, involved several private investors. IDFC paid INR3.5 billion The International Finance Corporation (IFC) has raises Series C for its 1.5% stake in 2009, so the sale price proposed a $100 million investment in Indian Atzuche, a Shanghai-based peer-to-peer (P2P) car indicates a 1.7x return on its investment. infrastructure-focused non-banking financial rental start-up, has completed a RMB400 million The period between 2008 and 2011 saw a company (NBFC) L&T Infrastructure Finance ($58 million) Series C round. Investors include wave of PE commitments in Indian energy, with (LTIF). The proceeds of LTIF’s non-convertible China Pacific Insurance, China Equity Group, an average of 18 deals per year and $3.4 billion debentures would provide credit lines for local Hangzhou Financial Investment Group, China invested in all according to AVCJ Research. solar developers. Securities, Matrix Partners China and Ivy Capital. However, investments fell sharply the following SOUTHEAST ASIA IDG, Sequoia form tourism fund with CYTS Tours Kickstart, BPI invest in IDG Capital and Sequoia Capital have formed an investment fund with Shanghai-listed travel Zalora Philippines agency China CYTS Tours Holdings to invest in Kickstart Ventures and BPI Capital have joined consumer-related companies that help improve their parent Ayala Group to buy a 49% stake in the traditional tourism industry. The three parties the Philippines business of online fashion retailer established a management company, CYTS Hong Zalora. Ayala will take a 43.3% stake and its Qi Fund Management, to operate the vehicle. property and mall development subsidiary Ayala Land will hold 1.9%, leaving about 3.8% for BPI and Kickstart. Rocket Internet, Zalora’s founder NORTH ASIA year after revelations of mismanagement and and chief backer, will hold the remaining shares. cancellation of planned coal allocations, leaving MBK to buy Daesung local energy suppliers starved for fuel. Kejora reaches first close “There were a multitude of issues, all Industrial Gases beyond the control of investors, that impacted on second fund MBK Partners has agreed to buy Daesung infrastructure investments of that vintage, and Indonesian VC firm Kejora Ventures has reached Industrial Gases (DIG) from a Goldman Sachs-led power was particularly badly impacted on a first close of nearly $25 million on its second consortium that has majority-owned the South account of the cancellation of coal blocks,” said fund and plans to expand into Thailand with the Korean industrial gas manufacturer since July Sinha, attributing IDFC’s relatively positive returns support of one of its LPs, . The overall target for 2014. Parent company Daesung Group said it from Essar to the downside protections built into Kejora Star Capital II is $80 million. would sell 40% of DIG – the balance is held by the original investment agreement. the consortium – for KRW354.9 billion ($314 Essar was the first investment from IDFC’s IFC set for $60m medical million). The overall deal is said to be worth debut infrastructure fund, which closed in 2009 around KRW2 trillion, including debt. with total commitments of $927 million. investment The International Finance Corporation (IFC) has Mercari buys VC-backed proposed a commitment of $60 million to IDS Group have made a JPY30.4 billion ($271 million) Medical Systems, a Hong Kong-based healthcare e-commerce player partial exit from Japanese airline Peach Aviation. industry supplier for Southeast Asia. The Japanese e-commerce company Mercari has INCJ and First Eastern will reduce their collective investment would support a $130 million growth agreed to acquire domestic competitor Zawatt, stake from 61.3% to 33% . The buyer is Tokyo- project for the company, including expansion of setting up an exit for a number of venture capital based airline operator ANA Group. existing operations and entry into new markets backers. Investors in Zawatt include CyberAgent such as Cambodia and Myanmar. Ventures, Net Capital Partners, Mizuho Capital, SOUTH ASIA SMBC Venture Capital, IMJ Investment Partners, Shanda leads $5.6m round MS Capital and Susquehanna Asia Investment. for Nida CDC, Manipal launch $80m INCJ, First Eastern part-exit Indonesian hotel reservation services provider healthcare fund Nida Rooms has raised a $5.6 million Series A Japan airline UK-based development finance institution round of funding led by China’s Shanda Group. Innovation Network Corporation of Japan (INCJ) (DFI) CDC Group has partnered with India’s Additional unnamed Southeast Asian investors and Hong Kong-based First Eastern Investment Manipal Education & Medical Group for an $80 also participated in the round.
Number 08 | Volume 30 | February 28 2017 | avcj.com 5
COVER STORY [email protected] Power to the public PIPE deals remain a significant part of private equity in India, but a slowdown in recent years has prompted investors to evaluate strategies and the place for public market deals in private portfolios
INDIAN ENGINEERING FIRM DYNAMATIC By contrast, over the same period China director of Asia funds at CDC. Technologies was relatively unknown in the has never seen PIPEs represent more than 10% Murugappan takes a similarly skeptical view country’s private equity community in 2010 of overall deal flow. The PIPE share of dollars of the financial. Unlike CDC’s social goals, this – and that was just the way Samena Capital invested in China has consistently been higher perspective is shared by many of the DFI’s fellow wanted it. The firm was on the lookout for local than in India – but this figure is inflated by deals LPs, which in recent years had begun to wonder, businesses that were overlooked by the wider such as Singapore state-backed investment increasingly vocally, why they should pay the investment community, and Dynamatic hit the vehicle Temasek Holdings’ multiple investments customary overhead for GPs to make passive sweet spot: it was listed, so most PE investors in Chinese state-owned banks of $1 billion or investments in public companies. This investor avoided it, but at the same time its liquidity was more. dissatisfaction, upon being noticed by PE too low for public market investors to take much While the strong presence of PIPEs in India’s managers, had the desired effect. interest. PE market is undeniable, they have shown a “GPs were being told by LPs that if they Samena feels Dynamatic has more than steady decline in recent years, going from a peak wanted to do a PIPE deal, they weren’t going justified its initial $8 million investment. From of 89 deals in 2011 to just 22 deals last year, a to get the same amount in terms fees [2% INR944.80 at the time of the original deal, the drop of more than 75%. Their share of overall management fee and 20% carried interest], company’s share price has more than tripled – deals also dropped from 20% in 2011 to just 3.6% because then the LPs would much rather go to a most recently closing at INR2,890. It was even in 2016. public fund manager than a private equity fund,” higher at the time the GP exited the stake held This development has generated little explains Vikram Hosangady, head of India private by its first find in October 2016, earning a return concern and some relief in the investment equity at KPMG. As a result, he says, “private of more than 2x (the firm retains an 8.8% stake acquired through its second fund). India PIPE deals “We identified this company five or six years ago when it did $1 million of sales to AirBus for a 100 6,000 component. Today it’s the hottest ‘made in India’ story. And we’ve seen that evolution happen over 80 4,000 the last six years,” says Chetan Gupta, senior vice 60 president at Samena. The firm sees Dynamatic as powerful evidence for why Indian PE investors s 40 2,000 mi io should not overlook PIPE deals, demonstrating 20 the kind of rewards available to managers who do their homework well. 0 0 The argument is well known among 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 India-focused GPs and many find it persuasive. No. of deals Amount (US$m) However, there are obstacles to pursuing PIPEs Source: AVCJ Research in India, among them a decline in opportunities and growing skepticism from LPs. Investors that want to look for treasure buried in India’s public community, with LPs in particular welcoming equity funds have become fairly averse to doing markets must form a convincing strategy and be it as a sign of growing maturity among India- PIPE deals unless they have to.” prepared to justify their approach to those who focused GPs. General Atlantic’s investment in PNB hold the purse strings. LPs’ hesitance to back GPs that pursue PIPE Housing Finance represents one recent case deals stems from multiple sources. In the case where circumstances seemed to dictate a The pipeline of UK-based development finance institution PIPE transaction: the GP joined the mortgage PIPE deals have historically accounted for (DFI) CDC Group, the companies that GPs are lender’s IPO last year as an anchor investor and a significant proportion of private equity most likely to find in the public market are later bought an additional INR5.01 billion ($76.1 transactions in India. AVCJ Research shows their correspondingly least likely to meet the social million) worth of shares after its debut. Waiting share of overall PE investments was above 10% development goals that are most important to until after the IPO gave General Atlantic a way in each year since 2007 until 2014, while their the institution. “Investing in a listed company, to gain exposure to an exciting company and share of the amount invested in dollar terms only which is hopefully already able to mobilize segment without trying to outbid other private dropped below 10% in 2016 – and so far this year commercial capital from the market at much investors. the latter number has risen back to just below cheaper rates, is not a good destination for our This is the type of PIPE investment that usually 40%. capital,” says Alagappan Murugappan, managing comes to mind among PE professionals, and is
Number 08 | Volume 30 | February 28 2017 | avcj.com 7 COVER STORY [email protected]
the chief driver of criticism both from LPs and space,” says Ahuja. “They could be temporary from the inability to sign a contract for the from other private equity firms that see this dislocations, or companies that have had a investment and thus set up the kind of rights approach as lazy and dangerous: the former temporary stumble that they will recover from and protections that a PE manager might because it requires none of the real work or over a medium to long term perspective.” take for granted. Samena’s Gupta points to talent that should go into setting up a private Identifying an investment opportunity can Dynamatic as an example of how a deal without investment; the latter because it tends to lead be easier with a public company than a private such arrangements can still work out to the benefit of both parties, but adds that the GP must demonstrate its willingness and ability s s r o o r s to help the target company and its trust in the 25 40 management. “We haven’t signed any kind of agreement 35 20 with them, but they invited us to sit on the board. 30 15 And the reason is because they see us as long- 25 term partners, they see us opening other markets 10 20 for them, they see the value add that we bring to 15 them in terms of understanding and deep diving
o s om 5 10
o o i i s o o into their operations,” says Gupta. “All of these are 0 5 reflective of the more traditional private equity 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 approach to operational enhancement in the No. of deals Amount (US$m) underlying company.” Source: AVCJ Research The relatively thin line between private and public companies in the Indian market means that in some cases GPs are on familiar ground to funds clustering into a few popular sectors one, since more of its financial information is with investees whose mindset is largely more without sufficient diversification and thus readily accessible. But investors warn this is similar to private companies than public ones. protection for their investors. not an unadulterated benefit. The other side of Subbu Subramaniam, founder of MCap Fund publicly available information is that promoters Managers, recalls a deal in which the firm paid Loving the unloved of public companies are often less willing or able $5 million for a stake in a listed company that By contrast, proper PIPE investing means going to provide access to internal information than brought its overall valuation post-investment to in the opposite direction: looking for companies private company owners are. Even having the $30 million. that have been largely ignored by both public needed financial information is no substitute “If that isn’t a private transaction I don’t know and private investors despite the increased for building a trusting relationship with the what it is,” says Subramaniam. “We got two board visibility of being listed, and that can benefit from company’s management. seats and 15% of the company. It’s theoretically the guidance that an experienced PE investor can bring to bear. India’s market offers some unique attractions “There will be a few LPs who say, ‘We’re agnostic in this regard, largely owing to the changing nature of its public markets and its evolving – as long as the manager is disciplined and the regulatory environment. Notably, a widely held perception among PE professionals is that many track record has demonstrated that they’re using of the closely-held companies on India’s public the flexibility smartly we’d love to give them bourses should not be listed at all, since their characteristics align more with those of private more’” – Gaurav Ahuja companies. These include companies such as the earlier mentioned Dynamatic, as well as commercial Executing the deal often requires similar listed and continues to be listed, but you can’t vehicle and motorcycle manufacturer Eicher skills to any other PE transaction. At typically low get out of 15% in one go. That is classic private Motors, another former portfolio company of liquidity levels, finding a seller willing to part equity.” Samena. Gaurav Ahuja, managing director of with a significant stake can be difficult, so GPs ChrysCapital, explains that many older Indian often must go to the company’s management, Weaker flow companies went public too early in their who usually hold 50% or more of the company Though these borderline-private companies are lifecycles due to difficulties private companies anyway, to negotiate a fresh offer of shares. a rich resource for GPs, they are not a renewable face in securing financing for expansion. Since In these cases PE investors say there is often one. Investors acknowledge that finding such their listings, in some cases decades ago, these little difference between their approach to opportunities has become more difficult in businesses have continued to attract little private companies and these technically-public recent years, accounting to some degree for the attention, resulting in valuations that hide their ones. Owners must be convinced that a GP can slowdown in PIPE deals both overall and as a real worth. serve as a suitable partner for the company’s share of overall deal flow. “These are companies with little or no future plans and that the relationship can be Prejudice by LPs against PIPE deals has also coverage, so there’s very little liquidity. So mutually beneficial. played a part in the decline, with GPs reluctant often times you will see opportunities in that An added layer of complexity comes to pursue too many such transactions for fear
8 avcj.com | February 28 2017 | Volume 30 | Number 08 COVER STORY [email protected]
of alienating investors, many of whom hail from terms of introducing new clients or enhancing portfolio companies rather than being returned other jurisdictions and may therefore not be as their financing structure, or areas where they to investors right away. The firm believes LPs familiar with the particular available in India’s can add value,” says Murugappan. “Only in those approve of its PIPE investments because of the public markets. situations would we permit them to invest in higher returns that this strategy can provide for “There will be a few LPs who say, ‘We’re PIPEs.” them. agnostic – as long as the manager is disciplined LP concerns have been allayed to an extent Despite this flexibility Samena has done few and the track record has demonstrated that by the recent decline in PIPEs – with public PIPE deals in India recently. Gupta acknowledges they’re using the flexibility smartly we’d love market transactions making up less of the that the firm has had a harder time finding to give them more,’” says ChrysCapital’s Ahuja. overall deal flow and a smaller part of the pot the proper opportunities, partly because PIPEs “But by and large the majority will say, ‘It’s unconventional and it’s hard for me to sell it internally, and so we wouldn’t want to do “They see us as long-term partners, they see us something like that.’” It is important to note that many LPs do opening other markets for them, they see the recognize the role that PIPEs play in the Indian value-add that we bring to them.” – Chetan Gupta market and are not wholly averse to exposure to this segment, albeit in a limited way. The challenge from an institutional investor’s as well, the hope is that private equity firms are form only part of its strategy so there is less perspective is to make sure a manager is using its moving toward a more balanced approach. At risk of pursuing sub-standard public market money in the most responsible manner possible. the same time, GPs that pursue PIPE deals say investments for the sake of getting capital CDC, for instance, specifies in its LP contracts that they have seen a growing acceptance of India’s deployed. At the moment the GP is content to GPs may consider public market transactions if PIPE potential among their investors, particularly wait and see when the types of deals it wants will the companies form only a small minority of the those who have seen consistent positive returns materialize. GP’s portfolio and if certain standards are met by from the strategy. “Tomorrow if things become much more the PE investor. Indeed, it may help for GPs to build a certain attractive, we would be more than happy to “We want them to take significant stakes and level of flexibility in their fund structure. Samena, deploy capital in them. It’s just that valuations be able to add value to those businesses. It might for instance, has set up its second fund so in our mind are far ahead of where they should not be in the governance, because they might that returns from public market exits can be be, especially in some of these hot sectors,” he not get the right to be able to do that, but in recycled for investment in the vehicle’s other explains.
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avcj.com FOCUS [email protected] Untapped eternity Increased urgency around demographic tailwinds in the funeral services space has coincided with a spate of investment activity in recent years. Private equity could be well positioned to play a leading role
THE PRIVATE EQUITY INDUSTRY HAS BEEN touchpoint for more than 20 years, China’s same as an insurance company except if the loss prodding around the funeral services space in emergence as a graying market has been of a family member occurs within the contract Asia for several years, but despite a number of relatively recent. period, clients are required to pay the balance of convincing macro indicators, investor sentiment It wasn’t until around 2010 that over- the service costs in a lump sum. has failed to gain any noticeable momentum. 65s began to approach 10% of China’s total Although generations of financial scandals Such malaise, however, tends to evaporate after a population, doubling a longstanding historic due to bad bookkeeping by local operators $1.1 billion deal. average. Since then, seniors have been have made acquisition targeting difficult for CVC Capital Partners’ acquisition of Malaysia- periodically projected to represent 15-20% of the VIG, the scattered playing field suggests there is based Nirvana Asia for that sum last year clarified world’s most populous country by 2030. potential to accumulate a leading market share. the industry’s potential in dramatic style. Not only The Carlyle Group and Farallon Capital This effect is exaggerated by a lack of chaebol is Nirvana the largest funeral services company in Management reacted to this outlook with a $35 participation in the industry, arguably for reasons Asia, it was the first Hong Kong-listed company million commitment to Shanghai-based funeral related to avoiding associations with death. The of any kind to be taken private by a PE firm. As a service provider Fu Shou Yuan International’s two biggest funeral service companies in Korea result, expectations of growing investor appetite are beginning to bubble in the bereavement industry. “The biggest angle for investment is customizing “We expect more investors and fund managers to come and look for M&A the funeral for each family and making the opportunities,” says Larry Kwan, business experience as memorable as possible” – Daisuke Murakami development manager for the Asia Funeral & Cemetery Expo and Conference, which will take place in Hong Kong this May. “They IPO in 2013. More substantive entries into the control 20-30% of the market combined, while now see funerals and cemeteries as having a Chinese market, however, have proven elusive. Jo-Un and a host of independents compete for comparatively higher profit margin and want to Nirvana, notably, has enjoyed a relatively the rest with shares of 1-5% each. start in the industry.” unfettered proliferation across Southeast Asia but GPs taking notice of this market for the first remains restricted to a marginal Chinese footprint Consolidation play time may confront an unexpected set of business due to local regulatory and land cost issues. This scenario has already played out in other variables around the fact that monetizing last Such roadblocks are particularly critical given markets with varying results. Nirvana, for respects can be an uncomfortable, even taboo, that one of the best strategic gambits private example, has exploited patchy competition topic in Asia’s traditionally minded circles. At equity brings to the table is growth through in Southeast Asia to take 80% of Singapore’s the same time, it is increasingly coming to light consolidation. Funeral service markets worldwide pre-need market but only 1% of the overall that few consumer lifestyle segments can boast are characterized by small, independent and market in Indonesia. An extreme example of such a potent combination of cultural and unprofessionally run businesses that can be the fragmentation effect can be seen in US- demographic drivers. cleaned up in the back-end and synergized based Service Corporation International, which through familiar buy-and-build plays. commands only 16% of its domestic market The aging effect “There are players who literally take money despite being the country’s largest operator with Private equity enthusiasm for death care services from customers and put it straight in the bank some 1,500 parlors and 470 cemeteries. in Asia was signaled as early as 2010 when earning 1% or less interest per year,” says Jason Australia-based Invocare – which has been Yunnan Hongfu Venture Capital launched a Shin, a managing partner at VIG Partners. “They supported by PE firm Propel Investments – is fund with a view to investing about $30 million aren’t doing any fund management because sometimes called the largest funeral services across 40 funeral parlors and graveyards. The plan they don’t see that as part of their core business. company in Asia Pacific and claims overall market included a promising contextual backdrop with In many regards, it’s a well suited industry for shares of 33% in Australia, 30% in New Zealand provincial government pledging funeral industry private equity.” but only 10% in Singapore. Interestingly, the support, but it was scrapped early due to lack of VIG became the first PE firm to invest in company’s Singapore business consistently tracks LP interest. Korea’s funeral services space last year with sales margins more twice as large as those of the The notion that such a scheme might gain the acquisition of an 84% stake in Jo-Un Life Australasian units. more traction in the wake of the Nirvana deal for KRW65 billion ($58 million). It is targeting The discrepancy in sales margins hints at how is not so far-fetched considering how the demand related to a local trend of dwindling social differences between East and West can environment has changed for a key investment family sizes and leveraging its experience make funerals more of a big-ticket play in Asia – rationale. While issues around Japan’s aging in the life insurance industry via a pre-need even at modest penetration rates. In addition to population have been an investment industry subscription model. Jo-Un operates much the the price hikes caused by more prevalent land
10 avcj.com | February 28 2017 | Volume 30 | Number 08 FOCUS [email protected]
scarcity issues, the industry can leverage stronger This approach recognizes that despite social land components and cash-generative value-add cultural pressure to observe strict ancestral pressures to pay proper respects to loved ones opportunity sets. reverence norms and extravagant memorials. and the inevitability of a “death boom” in aging VIG has contemplated just such a scenario in In Korea, VIG benefits from local customs societies, funeral services are not immune to the Korea’s growing segment for urn depositories, dictating three-day catered wakes where guests limitations of strained family budgets. Customers or columbaria. These facilities typically sell urn – sometimes numbering in the thousands – can will consequently need extra encouragement niches in the range $5,000-20,000 for a 30-year run up a bill as high as $10,000. Likewise in Japan, in the form of unique services before agreeing lease. Prices can vary depending on the position ceremonies last at least two days and can include to pay the high prices associated with modern of the niche within the columbarium, proximity elaborate services such as praying monks. ceremonies. to a city or the maintenance extras that an “There’s a lot of opportunity to put soft value “We’re seeing clear opportunities being investor is able to provide. into this industry because the B2C [business- facilitated by advisory firms in this space,” The death care industry’s international profile to-consumer] businesses are often managed Advantage’s Murakami adds. “We think we can as a disorganized patchwork of small, inefficient in a very old-fashioned manner,” says Daisuke grow Epoch through further M&A, so we will businesses is at the heart of this upside, but also a Murakami, a principal at Advantage Partners. keep pursuing opportunities in this area.” reminder that a local, community-sensitive tact is “The biggest angle for investment is customizing part of the service. The essence of PE’s advantage the funeral for each family and making the Macro vs micro may therefore be an ability to balance micro- experience as memorable as possible by The high costs associated with the funerals scale operational flexibility with a high-altitude coordinating goods, services and performances industry, however, can represent both a driver vision that acknowledges the fleeting nature of a associated with the deceased person.” and an inhibitor of expansion initiatives, as demographics-driven window of opportunity. Advantage was the first PE firm to invest in Nirvana’s stalemate in China attests. In many “We see this going from a fragmented Japanese death care with a buyout of Epoch markets, land cost issues have translated into mom-and-pop industry into a few very large Japan that valued the company at around JPY2 extremely high cremation rates. Japan is the organizations, and we intend on becoming one billion ($18 million) in 2015. The plan is to add world’s highest at 99%, while Korea follows of the leaders after such industry consolidation,” value to an operation that spans 46 existing closely at around 80%. says VIG’s Shin. “As long as the overall population funeral halls through premium services such as In this context, much of the recent PE activity is not declining and we have this increase in the family-customized food options, the production has been understandably reluctant to commit to affluent older customer base, the next 10-20 of memorial video montages and the formal the real estate side of the industry. The hesitancy years could be a kind of golden period that we organization of speeches that might not have may erode in the future, though, as hybrid plays can benefit from. The question is, after 20 years, otherwise been coordinated. come into focus combining relatively modest what do you do with the aged society?”
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sponsored by sponsored by sponsored by sponsored by avcj.com FUNDS [email protected] Into the white space The arrival of Odyssey Private Equity – a collaborative effort by former executives from two of Australia’s best known GPs – once again draws attention to the hole in Australia’s lower middle market
WHEN GEORGE PENKLIS STEPPED BACK “With the entry of the mega international However, it is an opportunity set to which from Quadrant Private Equity in December 2014, buyout funds and larger local funds, there are Australian superannuation funds have less he didn’t envisage returning to the industry with very few funds with deep relationships among exposure than before. As these funds have seen a new firm two years later. Penklis spent two Australian family businesses so we are seeing their asset bases grow their minimum check size decades at Quadrant, co-founding the business more opportunities that fit within our mandate has increased, making it harder to back smaller with Chris Hadley in 1994 under Westpac and and are exclusive,” says Jeremy Samuel, founder GPs. “Last time we raised a fund, several LPs taking it fully independent in 2005. Six funds and managing director of Anacacia Capital. The wanted A$50 million allocations, we told them were raised between 1996 and 2010, with GP closed its debut fund at A$50 million in 2008, we could give them A$30 million and they got corpuses increasing in size from A$50 million one of nine in the $25-249 million range from board approval,” one manager notes. “Now they ($38 million) to A$750 million. that vintage. When Anacacia raised A$150 million will want to write checks for A$80-100 million.” The firm is one of several in Australia whose for Fund II in 2013, it was one of just four final This attitude is rooted in cost: Super fund success propelled it into a higher tier: Quadrant’s closes that year in the entire growth and buyout trustee boards, wary of relatively high fees in eighth fund closed last year at A$980 million and fund market. private equity, prefer their alternatives teams to seeks to deploy A$70-150 million per investment, “If you look at the economy, nothing has write A$100 million checks to five managers – well beyond the lower middle market space changed,” he adds. “We are a very stable, with guarantees of co-investment – than A$20 where the GP made its name. international, small business economy with 25 million checks to 25. “For the super funds it all Penklis is now looking to fill the gap that comes down to the MER [management expense these transitions have left, teaming up with ratio],” Stafford’s White adds. “I think they would Gareth Banks, Jonathan Kelly and Paul Readdy, “Investors see the like the returns but MER is such a commercial all of whom were previously directors at CHAMP reality for them, and whether they like it or not, Ventures, a local GP that will not be raising a lower middle market they need to manage to it.” new fund. The new firm, Odyssey Private Equity, as a very positive area has secured commitments of A$275 million to Fundraising challenge invest in Australia and New Zealand. It will write for investment in As a result, the traditional source of capital equity checks of A$15-40 million for companies for Australian managers has become a less – George Penklis with enterprise valuations of up to A$100 million, Australia” meaningful allocator to the asset class, which is taking minority or majority positions. one of the reasons why the lower middle market “Investors see the lower middle market as million people, over one million small businesses, space remains underpenetrated. a very positive area for investment in Australia, and 50,000 companies with 20-200 employees, In the absence of super fund support, a new there is strong deal flow,” says Penklis, who spent which is Anacacia’s sweet spot. Management manager can turn to the likes of ROC, Stafford, the latter part of his two-year sabbatical assisting talent in Australia is strong so there is ample Vantage Asset Management and Continuity fund-of-funds ROC Partners on various initiatives. opportunity in this small-medium end of the Capital Partners for institutional support or tap “But it’s also where the gap is – those who market.” these fund-of-funds’ counterparts in Hong Kong perform go up and move out of the space while The Australian Bureau of Statistics put the and Singapore. Family offices and high net worth non-performers fall away.” number of companies with fewer than 20 staff at individuals are another option, but there is a just over two million in September 2016, while general unwillingness to back blind pool funds – Dwindling numbers 782,000 of these are considered active employers. so more managers work on a deal-by-deal basis. Fifteen years ago there are said to have been 15- They account for 97% of all companies Against this backdrop, Odyssey’s fundraise 20 private equity firms with institutional backing nationwide and – excluding financial services took an unusually quick two months, not in Australia and New Zealand’s lower middle and the public sector – nearly 44.8% of total including the Christmas period. But the situation market, many of them captive units of banks. employment and 35.6% of economic output. itself is unusual: the combination of executives That number has since fallen to half a dozen. Companies at the top of this tier and in from two well-established Australian PE firms Stephen White, managing partner at Stafford the one above it are classic targets for lower with relevant track records. The LP base is Private Equity, a domestic fund-of-funds, actively middle market private equity: founders and institutional, primarily domestic and – according follows about six managers, which he says is management teams that are at an inflexion to sources within the LP community – includes “pretty typical” of the market. point, whether they need a succession planning several investors in CHAMP Ventures funds. According to AVCJ Research, between 2005 solution or capital and expertise scale up. While “We have about 70 years of investment and 2010 there were 34 final closes for Australia there is growing appreciation of the role that a experience between us,” Penklis says of the four and New Zealand-focused buyout and growth financial investor can play in these processes, founders. “Investors are comfortable with the funds with corpuses of $25-249 million. For the deal-sourcing remains contingent on deep team and have known about our track records for six years following that, the total falls to nine. networks and careful cultivation of opportunities. a while.”
12 avcj.com | February 28 2017 | Volume 30 | Number 08 FUNDS / DEAL OF THE WEEK [email protected] / [email protected] ChrysCapital banks on reputation
IN THE WORLD OF PATIENT CAPITAL, A LPs in Fund VII include both new and existing backing for non-banking financial company Hero resilient track record counts for a lot. This may be investors, with insurance companies, university FinCorp and participation alongside Reliance especially true in India, where a number of macro endowments, family offices and global fund- Capital in L&T Infotech’s IPO . narratives have caused fundraising momentum of-funds represented. Returning LPs include Longevity is also expected to play a role in to wax and wane dramatically during the past Singapore’s GIC and Harvard Management ChrysCapital’s value-add proposals for these decade. According to AVCJ Research, Indian PE Company. companies going forward. “There are a lot of scars fundraising peaked at $10.3 billion in 2006 before ChrysCapital attributed the response to an on our back that a new entrepreneur can benefit falling as low as $5.4 million in 2011 and then almost two-decade history that from without experiencing clawing back to $6.2 billion last year. has produced $4.2 billion worth them firsthand,” Ahuja says. The Nerviness among LPs during these of exits that represents about firm is aiming to leverage 25-30 undulations has been understandable given a 8% of the national total. This was years of experience among its choppy domestic exit market, but managers that realized across 55 transactions key partners, especially in the have proved themselves capable of surviving representing all of the capital financial and healthcare sectors. periodic droughts are continuing to sell an from its first four funds and more “We have realized over encouraging long-term development vision. New than 100% of committed capital 18 years that we have been Delhi-based ChrysCapital has recently flexed its from its fifth. India fundraising: Rocky road investing in India that ownership muscle in this regard with an above-target close The latest vehicle launched stakes and rights you have that on its seventh India fund at $600 million. in September 2015 and reached a first close are detailed in the documentation are important, “There were some LPs who had invested of around $350 million that December. but only up to a point,” Ahuja continues. “The in India 7-10 years ago but, due to poor Investments will focus on the business services, relationships, sector knowledge and operational performance, have shied away for a long financial services, healthcare, consumer and experience in key sectors that we bring to the time,” says Gaurav Ahuja, managing director at manufacturing sectors, and will comprise table helps build comfort and confidence, so ChrysCapital. “We’re happy to be able to bring minority growth and select control deals. There entrepreneurs actually want to listen because some of these people back into the country.” have been two investments so far, including we’re speaking their language.” GPs target healthy scale
WHEN NAVIS CAPITAL PARTNERS 2012. Navis and Oaktree first discussed a merger introduce a new fitness concept, you are the go- bought gym operator Celebrity Fitness in 2007, the following year – and nearly four years on, it to person because you have 400,000 members,” Fitness First soon became the giant it wanted to has finally come to fruition. he adds. “So far we’ve tripled the value of our topple. The private equity firm invested about Any deal was contingent on the Fitness First equity in Celebrity Fitness. I feel we can double it $40 million in Celebrity Fitness and has helped business being broken up into its constituent again, and fairly quickly because of the synergies.” the business grow from fewer than 20 gyms geographical parts, and Oaktree Ownership of the combined and a predominantly Indonesian footprint to 62 didn’t want to act immediately. entity, known as Evolution across Southeast Asia. Over the past 10 years it However, after the Australia Wellness, will be split 60-40 has supplanted Fitness First as market leader in operation was sold last year, between Oaktree and Navis, Malaysia and widened the gap between the two progress could be made in but they will have joint control. operators in Indonesia. Southeast Asia. Fitness First An exit is likely in 2019 or 2020: “We thought we could outcompete them has 90 clubs in Singapore, by that point the company is because they were part of a leveraged buyout,” Malaysia, Indonesia, Thailand, expected to have EBITDA of close says Nick Bloy, managing partner at Navis. “All of the Philippines and Hong Kong, Fitness investing: Pumping up to $100 million, which would the cash being generated by Fitness First in Asia with 220,000 members and make it an attractive listing target. was being sucked up to pay down debt at the $219 million in annual revenue. Combining with Between now and then the plan is to pursue holding company level, so the local guys didn’t Celebrity Fitness – which covers Singapore as further growth in Southeast Asia, where gym have money to spend on capex.” well as Indonesia and Malaysia, and has 178,000 membership penetration is just 4.2% compared BC Partners had bought the global Fitness members and $76 million in revenue – will create to 14.8% in Australia. First business in 2005 only to see it hit hard by a business more than five times the size of its “Sometimes you are in a business that is the global financial crisis. The company duly nearest rival. a very steady compounder but remains very succumbed and its creditors, led by Oaktree “This is an industry that rewards scale: immature,” Bloy says. “Thailand, the Philippines Capital Management, completed a debt-for- landlords want you in their malls, not someone and Indonesia have big populations and we have equity swap worth around GBP565 million in with a weak balance sheet; if someone wants to barely tackled any of the secondary cities.”
Number 08 | Volume 30 | February 28 2017 | avcj.com 13 China 2017
6th Annual Private Equity & Venture Forum Indonesia 2017 27 April 2017 • Mandarin Oriental, Jakarta GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY SIGN UP ( SAVE Capturing the next wave of until NOW! 17 March 2017 private market opportunities US$200
Keynote Serge Lépine Chief Executive Officer only THE QATAR AND ABU DHABI INVESTMENT COMPANY ) (QADIC)
Confirmed speakers include: Aik Meng Eng Florian Holm Rebekah Woo Chief Executive Officer Co-CEO, Indonesia CFA, CAIA TE ASIA HEALTHCARE LAZADA GROUP Senior Director, Growth PARTNERS Markets Asia CDPQ ASIA PACIFIC PTE LTD Abhijeet Muzumdar Raymond Rudianto Markus Bracht Head of Corporate President Director Vice President Development & BARING PRIVATE EQUITY DEG Investments ASIA AMAZON
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6th Annual Private Equity & Venture Forum LP INTERVIEW Indonesia 2017 [email protected] 27 April 2017 • Mandarin Oriental, Jakarta GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY SIGN UP First mover ( SAVE Capturing the next wave of until NOW! Tsinghua University Education Foundation is the first Chinese endowment fund to invest in private equity. It 17 March 2017 private market opportunities US$200 has developed a preference for managers with niche strategies
Keynote Serge Lépine THE COMBINED ASSETS OF THE TOP 10 arm of the university. Coverage broadened to Yao Capital co-founder David Han is a Tsinghua Chinese university endowments amount to less include third-party domestic GPs in response graduate and he previously worked on potential Chief Executive Officer only THE QATAR AND ABU DHABI INVESTMENT COMPANY than the $35.7 billion held by Harvard University, to government policies that encouraged this collaborations with TUEF while with Chinese ) the largest of their US counterparts. The disparity behavior, giving rise to a host of new renminbi- conglomerate Wanda Group. “We normally would (QADIC) exists because the two countries have different denominated funds. not invest in new GPs if there is no established education systems. While Chinese universities are TUEF had a bias towards large generalist any relationship. It takes us several years to Confirmed speakers include: mostly government funded, private donations funds managed by reputable GPs in the early evaluate a GP before we invest,” Huang adds. are vital to many US educational institutions. days because the industry was still nascent – for TUEF invests in both in renminbi and US dollar Aik Meng Eng Florian Holm Rebekah Woo However, China’s endowment community has example, it invested in Hony Capital’s second vehicles, committing approximately $10 million Chief Executive Officer Co-CEO, Indonesia CFA, CAIA seen significant change over the last 20 years. renminbi fund, which closed at RMB10 billion in each time. For direct investments, it cannot TE ASIA HEALTHCARE LAZADA GROUP Senior Director, Growth Tsinghua University Education Foundation 2010. But over the ensuing years, the endowment account for more than 10% of the transaction PARTNERS Markets Asia (TUEF) was created by Tsinghua University in has gradually diversified its approach, backing size. The endowment previously invested several CDPQ ASIA PACIFIC 1994 to handle RMB20 million ($3 million) in smaller GPs with niche strategies that are agriculture-related projects initiated by Tsinghua PTE LTD donations. It was the first non-profit university expected to deliver higher returns. University. Renminbi funds tend to be of shorter organization in China. A number of commitments have been duration than traditional US dollar vehicles, and Abhijeet Muzumdar Raymond Rudianto Markus Bracht Between 2010 and 2015, TUEF’s assets grew made to industry-focused vehicles launched by TUEF used to be wary of tying up its capital for Head of Corporate President Director Vice President from RMB1.49 billion to RMB5.17 billion, and generalist GPs, and also to funds operated by extended periods. Development & BARING PRIVATE EQUITY DEG it made distributions RMB3.53 billion to the “When we invested in a seven-year PE fund, Investments ASIA university and to charities. This growth was we became very nervous and worried about AMAZON primarily driven by an annual average of RMB1.1 “We are seeing Chinese whether portfolio companies could go for IPOs billion in donations over the same period, 90% or achieve strong exits,” says Huang. “Now, with of which came from social organizations and GPs have become more experience, we feel comfortable with the For the latest programme and speaker line-up, visit avcjindonesia.com individuals and the rest from alumni. The capital more professional in traditional US dollar fund lifespan of 10 years. It’s goes towards general improvements at the been a learning process for us.” university, although some donors request that specific segments and Forum key statistics their money be spent on specific projects. Overseas experiments “Part of the remaining capital is used we prefer to back those For much the same reason, TUEF hasn’t rushed for making investments,” says Ying Huang, into international private equity. In 2007, it 2 + + 35+ 9 5 8 candidates” – Ying Huang Participants Limited Partners speakers countries premium interactive investment manager at TUEF Asset Management, formed a tech-focused Sino-foreign joint venture, represented networking sessions the endowment’s investment platform. “But it known as SBI & TH Venture Capital, alongside opportunities took us several years to accumulate sufficient specialists. CDH Investments counts TUEF as an Japanese conglomerate SBI Holdings. The JV capital to make meaningful investments.” LP in its mezzanine, real estate and acquisition invested in early-stage companies based in China TUEF started making external commitments financing project funds. A healthcare vehicle and overseas, but it is no longer making new in 2005. Like other institutional investors, the managed by CITIC Capital has also received an commitments. initial focus was on fixed income and public allocation, as have Cathay Private Equity’s Sino-US TUEF is now working with its existing GPs equities. Three years later, it made its debut small and medium-sized enterprise (SME) fund to gain exposure to overseas assets that have a private equity investment – becoming the first and sports-focused Chinese GP Yao Capital. China relevance. Through CDH’s project financing endowment in China to make the jump. As On the VC side, TUEF invested in the first funds, it participated in WH Group’s $7.1 billion of 2015, it had deployed RMB2 billion across renminbi fund launched by Joy Capital, a recent acquisition of US-based Smithfield Foods and Registration and sponsorship enquiries: multiple asset classes, with a total market value spin-out from Legend Capital led by Erhai Liu. The supported the GP’s purchase of Nanfu Battery of RMB4 billion. The private equity portfolio, GP typically targets at start-ups operating in auto from Procter & Gamble. In each case, TUEF Enquiry Anil Nathani T: +852 2158 9636 E: [email protected] including direct and fund investments, industry and other consumer-related segments. converted renminbi into US dollars in order to accounted for 20% of the total asset value. “We are seeing Chinese GPs have become more invest. professional in specific segments and we prefer “Our fund volume is small compared to Asia Series Sponsor Co-Sponsors Narrowing focus to back those candidates,” says Huang. “If a GP the likes of Chinese insurers. When it comes to That first PE commitment stayed close to comes to us and says it wants to do anything and overseas fund investments, insurers have to focus home as TUEF established a joint venture with everything, we would be concerned that they are on large established GPs that can accommodate Tus-Holdings, a Tsinghua-backed science park too diverse.” their check size and provide stable returns. We developer that incubated Chinese start-ups. With a five-strong investment team to can’t write such big checks right now. We are The JV invested in Tsinghua family funds, such oversee all asset classes, TUEF relies heavily on more focused on alpha returns, and that’s why as vehicles managed by TusPark Ventures, a VC its own network to source GPs. For example, we prefer specialists,” says Huang. Join your peers avcjindonesia.com #avcjindonesia Number 08 | Volume 30 | February 28 2017 | avcj.com 15 Private Equity & Venture Forum Vietnam 2017 25 May 2017, Park Hyatt Saigon, Ho Chi Minh
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