Asia’s News Source avcj.com February 03 2015 Volume 28 Number 05

EDITOR’S VIEWPOINT Strong prospects for PE trade sales Page 3 NEWS CICC, Clearwater, CVC, First Eastern, Gobi, Legend, Navis, Quadira, Sailing, Sequoia, Valiant Page 4 DEAL OF THE WEEK CDC champions India rural rail freight solution Page 12 Huimin finds niche as small retail intermediary Page 13 FUNDS Hahn & Co in Fund II, co-invest double-header Page 13 INDUSTRY Q&A Bureaucratic traffic Bert Koth of Denham Capital talks mining Asian GPs are paying more attention to AIFMD, but confusion still reigns Page 7 Page 15

FOCUS DEAL OF THE WEEK

Capital alternatives Happily ever after? finds willing clients in India Page 10 Longreach buys bridal jewelry business Page 12 14th Annual Private Equity & Venture Forum China 2015 28-29 May • China World Summit Wing,

GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjchina.com

What to expect at LPs GPs AVCJ China Forum 2015:

1 : 2 RATIO LP-GP distinguished speakers who 50+ Attended by 110+ LP have unique insights in global and from China and overseas

domestic investments Principal/VP/ Associates 33% Managing Director/ thought-provoking sessions Partner/ CFO/COO 15+ 32% Director / GM / covering regional and domestic Chief Representative 20% most debated topics Chairman / CEO / Managing Partner

15% TITLE BY 300+ attendees who are policy makers, fund managers, China investment professionals, corporate 76% executives from across the region 13% 6 roundtable sessions with top BY COUNTRY BY expertise and intimate networking Over 344 participants from opportunities 15 countries and 230 companies. Register for Super Early Bird Rate on or before 6 March 2015! REGISTER NOW by emailing us: [email protected] For sponsorship enquiries, please email: [email protected] or call: +852 3411 4919

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28-29 May • China World Summit Wing,Beijing Managing Editor Tim Burroughs (852) 3411 4909 Staff Writers Andrew Woodman (852) 3411 4852 Time to trade Winnie Liu (852) 3411 4907 Creative Director Dicky Tang Designers Catherine Chau, Edith Leung, EXAMINED PURELY IN DOLLAR TERMS, However, it does point to pragmatism in the face Mansfield Hor, Tony Chow China private equity trade sales offer little insight. of a changing opportunity set. Senior Research Manager In 2014, total proceeds came to $4.8 billion, Industry consolidation is certainly an Helen Lee the lowest in five years. But the 2013 figure of interesting theme, and it doesn’t have to be led Research Associates $7 billion was inflated by Baidu’s $1.85 billion by a state-owned enterprise. A host of locally- Herbert Yum, Jason Chong, Kaho Mak GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjchina.com acquisition of 91 Wireless (several VCs sold listed Chinese companies are on the lookout for minority holdings). Similarly, in 2012, Goldman acquisition opportunities through which they Senior Marketing Manager Sally Yip Sachs received $2.3 billion from Temasek can stay on course with growth projections. GPs Circulation Administrator What to expect at LPs Holdings for a 1% interest in Industrial and Buying up rivals can be challenging for corporate Prudence Lau Commercial Bank of China. China but if there is a minority PE investor keen Subscription Sales Executive AVCJ China Forum 2015: More significantly, AVCJ Research has records to exit then it can play agitator or facilitator in Jade Chan of 69 trade sale exits in 2014 up from 54 and 36 in order to get a deal done. Manager, Delegate Sales each of the previous two years. It is the largest- Another trend is the greater willingness Pauline Chen

1 : 2 RATIO LP-GP ever annual total, topping 59 in 2010. among entrepreneurs to completely sell of a distinguished speakers who Director, Business Development 50+ Attended by 110+ LP The momentum appears to have carried business – perhaps due to advancing age, an Darryl Mag into 2015, although in this particular instance increasingly difficult commercial environment, have unique insights in global and from China and overseas Manager, Business Development the impact is very much in dollar terms. Two PE or recognition that another group is better Anil Nathani, Samuel Lau domestic investments Principal/VP/ funds managed by China International Capital positioned to lead the next stage of growth. Associates Sales Coordinator 33% Corporation last week agreed to exit Jiangyin These situations are as much an opportunity Debbie Koo Managing Director/ Tianjiang Pharmaceutical as part of China for PE firms to secure as they are for 15+ thought-provoking sessions Partner/ CFO/COO Traditional Chinese Medicine’s (China TCM) $1.34 minority backers to get out. Conference Managers 32% Jonathon Cohen, Sarah Doyle, billion acquisition. The funds, which own just over According to AVCJ Research, only two trade covering regional and domestic Director / GM / Conference Administrator Chief Representative 30% of the firm, sould receive about $532 million. sales in which a private equity investor has exited 20% Amelie Poon most debated topics Chairman / CEO / The deal is also a strong example of one of a control position have topped $600 million: TPG Conference Coordinator Managing Partner driving forces behind this trade sale surge. China Capital’s sale of UT Capital to Haitong Securities Fiona Keung, Jovial Chung

15% TITLE BY TCM was acquired by a Hong Kong subsidiary in 2013 and Affinity Equity Partners and Unitas Publishing Director 300+ attendees who are of state-owned China National Pharmaceutical Capital’s exit of Beijing Leader & Harvest Electric Allen Lee Group Corp. in 2013. With the subsequent Technologies to Schneider Electric in 2011. policy makers, fund managers, purchase of Tongjitang, China TCM kicked off an This select group will enlarge if China buyouts China investment professionals, corporate 76% M&A spree that is expected to run for some time. evolve in the way the industry hope There is no single founder-controlling Incisive Media executives from across the region Hong Kong shareholder in Jiangyin Tianjiang; the chairman Unit 1401 Devon House, Taikoo Place 13% 979 King’s Road, Quarry Bay, and founder of the company agreed to sell a less Tim Burroughs Hong Kong T. (852) 3411-4900 than 10% stake to China TCM, which is picking Managing Editor F. (852) 3411-4999 6 roundtable sessions with top up an 81.5% interest from multiple shareholders. Asian Journal E. [email protected] URL. avcj.com BY COUNTRY BY expertise and intimate networking Over 344 participants from Beijing Representative Office China private equity exits by type No.1-2-(2)-B-A554, 1st Building, opportunities 15 countries and 230 companies. No.66 Nanshatan, Chaoyang District, Beijing, 200 People’s Republic of China T. (86) 10 5869 6203 Register for Super Early Bird Rate on or before 6 March 2015! F. (86) 10 5869 6205 150 E. [email protected] REGISTER NOW by emailing us: [email protected]

For sponsorship enquiries, please email: [email protected] or call: +852 3411 4919 100 Exits The Publisher reserves all rights herein. Reproduction in whole or in part is permitted only with the written consent of Co-Sponsors VC Legal Sponsor AVCJ Group Limited. 50 ISSN 1817-1648 Copyright © 2015

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 IPO Open market sale Share buyback Trade sale Philanthropy Partner Media Partners Source: AVCJ Research

Join our WeChat for avcjchina.com latest AVCJ Feeds Number 05 | Volume 28 | February 03 2015 | avcj.com 3 NEWS

CICC funds exit China TCM invest up to $84 million into four venture capital PACIFIC funds as part of efforts to support local start-ups. business via trade sale Commitments will be made to 500 Navis tops off fund with Two PE funds managed by China International Startups’ third fund, local accelerator AppWorks’ Capital Corporation (CICC) will exit Jiangyin second fund, Translink Capital Partners III, and a shariah-compliant vehicle Tianjiang Pharmaceutical as China Traditional joint venture fund run by the Battelle Memorial Navis Capital Partners has reached a final close of Chinese Medicine (China TCM) buys a majority Institute unit 360ip and Industrial Technology $1.5 billion on its seventh fund with the addition stake in the business for up to RMB8.34 billion Investment Corp. of a shariah-compliant parallel vehicle. The bulk ($1.34 billion). CICC Jiatai Equity Investment of the international LP commitments, totaling Fund holds a 19.71% stake in Jiangyin Tianjiang, China Merchants backs around $1.3 billion, came by February of last year.. having paid RMB613.2 million for the interest in September 2011. A further 12.63% is owned by United Photovoltaics L Capital Asia backs Saudi China Merchant Fund Management, an investment arm of China Merchants Bank, has Arabia confectioner subscribed to RMB420 million ($67 million) L Capital Asia – a PE firm sponsored by luxury worth of convertible bonds issued by solar plant goods LVMH – has secured its first operator United Photovoltaics. The instruments Middle East investment with the acquisition of have a three-year tenor, a coupon of 7.5% and a a minority stake in Bateel, a luxury confectioner conversion price of HK$1.03 per share. based in Saudi Arabia. The company has a chain of 43 confectionery boutiques across First Eastern’s Chu launches 14 countries. Nine of these outlets are in Asia, spanning India, Indonesia, Malaysia, and Pakistan. Nova Scotia fund Victor Chu, chairman of Hong Kong-based First Eastern Investment Group, is leading a group of AUSTRALASIA CICC Jiatan Equity Investment Partnership. The private investors that will create a C$50 million two funds will sell their stakes to China Traditional ($40 million) venture capital fund in Nova Scotia, PE talks with for up to RMB3.33 billion. Canada. The fund is intended to help local small Another financial investor, Wuxi Guolian and medium-sized enterprises (SMEs) expand Bradken fall through Zhuocheng Venture Capital, has a 1.14% interest. into Asia. (PEP) and have This will be exited alongside stakes owned by pulled their A$872 million ($731 million) take- Jiahua United, Guangdong Keda Clean Qiming, IDG back China over bid for Australian mining industry supplier Energy, and Dengping Tan, a director of Jiangyin Bradken due to volatility in the commodities Tianjiang. China TCM will pay up to RMB4.13 plastics trading platform market. The PE firms concluded confirmatory billion for a 40.52% holding. Finally, Jialin Zhou, Qiming Venture Partners and IDG Capital diligence following Bradken’s decision to open chairman of Jiangyin Tianjiang, sell her 8.62% Partners have led a $20 million for its books, but market conditions had made stake for up to RMB878.7 million. Zhaosuliao.com, a Chinese B2B plastics trading it impossible for the consortium to obtain Founded in 1992, Jiangyin Tianjiang is China’s platform. Existing backers Matrix Partners China financing on acceptable terms. largest producer of traditional Chinese medicine and angel investor Zhujie Li, an investment (TCM) granules. These are extracts of medicinal partner at ZhenFund, also participated. GREATER CHINA herbs created through the use of modern extraction and concentration technologies. Gobi, ABC lead $6m Series Granule sales grew from RMB228 million in 2006 A for AutoBot Sailing invests backs cross- to RMB4.2 billion in 2013. The market is expected to be worth RMB18.8 billion by 2018. Jiangyin Gobi Partners and ABC Capital have led a $6 border e-commerce site Tianjiang and its subsidiary, GD Yifang, are two million Series A round for Chinese start-up Sailing Capital has committed $100 million in of only six companies in China approved to AutoBot, which makes diagnostic tools for Series B funding to Ymatou, a B2C e-commerce manufacture concentrated TCM granules. cars. The company’s two flagship products are site supported by a global logistics system that AutoBot Pro and the AutoBot Mini - on-board connects foreign retailers to Chinese consumers. diagnostic (OBD) devices that are plugged into a It works with over 1,000 businesses in North Biologics, a Chinese biopharmaceutical company. car’s OBD-II outlet or cigarette lighter and collect America, and Australasia, enabling them Temasek Holdings also came in as a new investor, and analyze data on vehicle performance. to access the China market without maintaining while existing backers Fidelity Biosciences, inventory and establishing local operations. Fidelity Growth Partners Asia, Lilly Asia Ventures Sequoia leads Series B and Frontline Bioventures also participated. round for car-sharing app Legend Capital leads round Taiwan’s NDF commits has led a Series B round of for Innovent Biologics funding for Tiantian Yongche, a Chinese peer- Legend Capital has led a Series C round of $84m to VC funds to-peer (P2P) car-sharing platform. This follows a funding worth $100 million for Innovent Taiwan’s National Development Fund (NDF) will $3 million Series A round from Innovation Works

4 avcj.com | February 03 2015 | Volume 28 | Number 05 NEWS

last June. Operated by Beijing Tian Heyi Tech Quadria seals landmark investment unit through a combination of an Company, Tiantian Yongche enables private car IPO and a private placement. The unit will pursue owners to connect with prospective passengers. Indonesia pharma deal long-term capital appreciation by investing in Southeast Asia-focused healthcare investor public and private equities and debt instruments Quadria Capital, which is expected to close its in India and Indian businesses. NORTH ASIA latest fund in the next two months, has taken a minority stake in Indonesian drug manufacturer Valiant leads $26m Series Japan’s Integral to Soho Global Health. This is thought to be the first private equity D for India’s FirstCry refinance bankrupt airline investment in Indonesia’s pharmaceuticals Valiant Capital Partners has led a $26 million Japan’s Integral Corp. has agreed to refinance industry. The size of the transaction was not Series D round for Brainbees Solutions, the Indian ailing domestic airline Skymark which filed for disclosed, but Quadria is looking to complete 6-7 start-up behind babies and children-focused bankruptcy protection last week. The deals from a $300 million fund, which suggests retailer FirstCry.com. Existing investors IDG Exchange-listed budget carrier blamed check sizes of $40-50 million. Ventures India, Vertex Venture Management and the weak yen and its legal dispute with aircraft Headquartered in Jakarta and controlled by SAIF Partners, also participated in the round. manufacturer Airbus for its woes. Skymark has the Tan family, Soho Global is one of Indonesia’s racked up debts of JPY71 billion ($603 million). largest pharmaceutical players. It produces a SOUTHEAST ASIA YJ Capital launches Fund II, secures first deal SGX, Clearbridge form SME YJ Capital - the VC arm of Yahoo! Japan - has capital-raising platform announced the launch of its second fund, which The Exchange (SGX) has partnered has made its first investment in Indonesia fashion with Clearbridge Accelerator to set up a capital- flash sale site VIP Plaza. The new fund will have a raising platform for small- and medium-sized total corpus of JPY20 billion ($169 million) with enterprises (SMEs) in Asia. The two parties will Yahoo! Japan providing the bulk of the capital - set up a joint-venture company to develop the JPY19 billion - and the GP putting in the rest. platform. Gumi Ventures reaches a CVC makes another partial range of herbal and synthetic treatments – $16.9m close on Fund II generics as well as licensed formulas – and in exit from Matahari Gumi Ventures – the corporate VC arm of the 2013 set up a joint venture with Germany’s CVC Capital Partners has reduced its stake in Japanese mobile gaming company of the same Fresenius Kabi to manufacture liquid injectable Indonesia’s Matahari Department Store from 14% name – has reached a JPY2 billion ($16.9 million) products and branded generics. The company to around 2% after making two separate sales. final close on its second fund. The new fund has exposure all the way along the value The PE firm reportedly raised IDR3.67 trillion launched in August. chain from manufacturing to distribution, with ($294 million) by selling 238.6 million shares - or channels that cover 90% of Indonesia’s major an 8% stake - at IDR15,400 apiece.. SOUTH ASIA cities. “We are providing capital to grow the Facebook co-founder backs business and expertise to help them identify and Singapore property site Hillhouse leads Series B for bring in new products that will diversify their portfolio,” Hareesh Nair, vice president at Quadria, Eduardo Saverin, co-founder of Facebook, has auto portal CarDekho told AVCJ. Asked why it has proved difficult for led a S$2 million ($1.5 million) round of seed Hillhouse Capital has led a Series B round of foreign PE to make a breakthrough in Indonesia’s funding for 99.co, a Singapore property listings funding worth $50 million for GirnarSoft, owner pharmaceutical industry, Nair noted that site. Sequoia Capital also participated alongside and operator of India-based automobile trading companies have a variety of sources of capital several entrepreneurs-turned-investors. The platform and information portal CarDekho. Hong available to them and are therefore looking for company previously received backing from Kong hedge fund Tybourne Capital and Sequoia partners that offer support in achieving particular Fenox Venture Capital, Golden Gate Ventures, East Capital also participated in the financing, which goals. Ventures and 500 Startups. values CarDekho at $300 million. Lakeshore invests $4.5m in L Capital Asia exits PVR PVR Leisure focuses on in-mall entertainment, gaming, food and leisure. Thailand steakhouse chain Leisure via share buyback Thailand-focused GP Lakeshore Capital Partners L Capital Asia, a PE firm sponsored by luxury Canada’s Fairfax Financial has invested $4.5 million in KT Restaurant, goods conglomerate LVMH, has exited its stake the Bangkok-based operator of mid-market in PVR Leisure, a unit of India multiplex operator raises $1b for India unit steakhouse chain Santa Fe. Santa Fe has 66 PVR, via a share buyback arrangement with the Canada-based Fairfax Financial Holdings has branches, half of which are in Bangkok with the parent. The firm retains an interest in parent. raised $1 billion for its recently-formed India rest located in provincial cities around Thailand.

Number 05 | Volume 28 | February 03 2015 | avcj.com 5 4th Annual Private Equity & Venture Forum Indonesia 2015 24 March, Grand Hyatt Jakarta

GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjindonesia.com Volatility, Opportunities and Jokonomics: A new landscape for PE We are delighted to bring your attention to the NEW speakers already confirmed for the 4th Annual AVCJ Indonesia Forum. Taking place on 24 March 2015 in Jakarta, this year’s agenda will adopt a lively and interactive format, addressing the significant potential as well as challenges PE is facing in this unique but volatile market. Join local and regional private equity leaders to debate whether Indonesia is still THE hot market in Southeast Asia and how deal activity can be increased over the next 12 months.

NEW speakers just confirmed include: Wen Tan Sandeep Naik Partner Managing Director, India & FLAG SQUADRON ASIA Southeast Asia

Jaganath Swamy Azam Khan Vice President Chief Investment Officer, HARBOURVEST PARTNERS (ASIA) Infrastructure East Asia and Pacific LIMITED IFC

Irene Koh Jaka Prasetya Vice President Managing Director, Private Equity JP MORGAN ASSET MANAGEMENT KKR SINGAPORE

Jean-Christophe Marti Philip Jeyaretnam Senior Partner Managing Partner NAVIS CAPITAL RODYK & DAVIDSON LLP

For the latest programme and speaker line-up, visit avcjindonesia.com

Registration: Yeni Kittrell T: +852 3411 4836 E: [email protected] Sponsorship: Anil Nathani T: +852 3411 4938 E: [email protected] Enquiry

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Scan this QR code with Join your peers your phone to access the avcjindonesia.com #avcjindonesia event website 4th Annual Private Equity & Venture Forum COVER STORY Indonesia 2015 [email protected] 24 March, Grand Hyatt Jakarta Shades of gray Many Asian managers are coming to terms with how the EU’s Alternative Investment Fund Managers’ Directive might impact their fundraising plans. Unfortunately the legislation remains difficult to fathom

“I’M NOT GOING TO BOTHER FUNDRAISING states fall into two categories. Germany, France ever seen before and duly crashed. “I know just in France anymore. It’s a shame, but the and Austria, for example, have systems that make from dealing with some clients in the last week GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjindonesia.com regulatory situation means it is just too much private placement more difficult, while much of that they still haven’t received their login details trouble.” This view, expressed by a GP in the Southern and Eastern Europe remain completely enabling them to register, let alone file reports. process of raising a China growth fund, is a unfathomable. They have missed the deadline but it’s not their Volatility, Opportunities and Jokonomics: common refrain among Asia-based private Across all the interviews conducted for this fault,” says John Adams, a partner with Shearman equity managers getting to grips with Europe’s article, the phrase “huge gray area” cropped up & Sterling’s UK investment funds practice. A new landscape for PE changing regulatory environment. with alarming frequency. Yet this is the reality His view is that, with regulators under so France has emerged as the prime example confronting Asian managers. They must establish much pressure to get the reporting to work, We are delighted to bring your attention to the NEW speakers already confirmed for the 4th Annual AVCJ of a jurisdiction that has erected a bureaucratic what they are legally allowed to do where, and managers are unlikely to be investigated for all Indonesia Forum. blockade around its investor community in the then cover the relevant costs. For many smaller but the most wanton flouting of the rules. This Taking place on 24 March 2015 in Jakarta, this year’s agenda will adopt a lively and interactive format, wake of the global financial crisis and then the players it might be a bridge too far – and the does not, however, mean that GPs are getting a addressing the significant potential as well as challenges PE is facing in this unique but volatile market. EU’s Alternative Investment Fund Managers’ potential opening up of the passport system to free ride: everything they do may ultimately be Join local and regional private equity leaders to debate whether Indonesia is still THE hot market in Directive (AIFMD) intended to protect citizens non-EU managers is not necessarily a panacea. assessed in hindsight. Southeast Asia and how deal activity can be increased over the next 12 months. from any future fallout. Once a market of small “In Asia it hasn’t really been that much of but not insignificant interest to non-European a focus,” says Alexander Traub, head of Asia at Retrospective risk GPs now it is largely off limits to them. Augentius, a private equity fund administrator An ethically dubious position on AIFMD would speakers just confirmed include: The problem is not necessarily AIFMD itself. and depository. “If people are not avoiding be to ask how the regulators can tell if a non-EU NEW Announced in 2011 and implemented two years Europe as a whole they are only just coming manager is marketing without a license – the Wen Tan Sandeep Naik later, the passport regime enables EU-based around to the fact that something has to be very nature of the infraction is that there is no Partner Managing Director, India & funds and managers (AIFs and AIFMs) to market done and they are getting in line.” registration. Two parties would be able to tell: a FLAG SQUADRON ASIA Southeast Asia their products freely within the region, albeit on The reporting deadline for managers that disgruntled GP that is following the rules could GENERAL ATLANTIC condition of meeting more stringent regulatory registered for marketing in the EU after July 22, inform the regulators of a rival that is not; or, requirements. 2014 fell at the end of last month. For EU-based more worryingly, a disgruntled LP. Jaganath Swamy Azam Khan Alongside AIFMD, member states run private AIFMs this is now a matter of habit, but the vast “If someone is found to be marketing a fund Vice President Chief Investment Officer, placement regimes used by non-EU managers. majority of their non-EU counterparts this was in certain jurisdictions without authorization HARBOURVEST PARTNERS (ASIA) Infrastructure East Asia and Pacific Not only must these GPs submit separate LIMITED IFC documentation for each jurisdiction in which they want to market, but extensive “gold-plating” AIFMD timeline Irene Koh Jaka Prasetya has resulted in systems that vary hugely in terms 2011 July 1: Directive published; July 21: Becomes legally binding Vice President Managing Director, Private Equity of ease of access. France is a tricky one. 2013 March 22: Level 2 measures introduced; July 22: Implementation date, passports available to EU AIFMs JP MORGAN ASSET MANAGEMENT KKR SINGAPORE “The private placement regime in France is to 2014 July: End of transitional period for AIFMs operating before July 22 my knowledge largely untested and few people have the appetite to navigate registering there,” 2015 July: ESMA reports on extension of passport to non-EU AIFs/AIFMs Jean-Christophe Marti Philip Jeyaretnam says Gus Black, an investment funds partner with 2016 Passports may be made available to non-EU AIFs/AIFMs; substance requirements for non-EU AIFMs Senior Partner Managing Partner Dechert. “France is also a country in which we run managing EU AIFs or marketing AIFs via passport NAVIS CAPITAL RODYK & DAVIDSON LLP into a strong investor preference for an onshore 2017 July: Review of the directive by the European Commission European vehicle. It is academic whether you 2018+ ESMA to review passport regime; possible end to national private placement regimes; substance could register an Asian GP with a Cayman fund if requirements for all non-EU AIFMs For the latest programme and speaker line-up, visit avcjindonesia.com the investor actually wants a European fund.” Source: KPMG

Uncertainty reigns a first experience of the system. There are some they could be looking at a jail sentence,” says Registration: Yeni Kittrell T: +852 3411 4836 E: [email protected] Other jurisdictions are also home to difficult exceptions – for example, the Netherlands has Christopher Stuart Sinclair, a director with Sponsorship: Anil Nathani T: +852 3411 4938 E: [email protected] Enquiry investors and challenging private placement said that does not yet expect external managers Deloitte’s advisory and consulting department in regimes. If the UK, Luxembourg, Ireland and to start periodic reporting – but in most Luxembourg. Co-Sponsors Legal Sponsor the Netherlands are described as generally jurisdictions there was a rush to submit year-end “What is also coming to the fore is the accommodating – in the UK and Luxembourg 2014 reports. regulatory put option. If in the future things a manager simply notifies the regulator of its The UK’s online reporting system set up by turn sour between a GP and LP, an LP could turn intent to market a fund rather than having to go the Financial Conduct Authority (FCA) was beset around and say, ‘You marketed to me improperly. through a registration process – other member by a much larger volume of traffic than it had I bought in good faith but you weren’t in Scan this QR code with Join your peers your phone to access the event website avcjindonesia.com #avcjindonesia Number 05 | Volume 28 | February 03 2015 | avcj.com 7 COVER STORY [email protected]

compliance – I want my money back.’ That is But if a manager informs existing LPs that the The Asian manager currently in the market, the biggest consideration keeping people from current vehicle is 90% drawn down and those who has gone through notification in the UK and walking too fine a line.” LPs logically conclude that another fund is in is waiting to see whether LP demand warrants The threat of retrospective action has the pipeline, prompting inquiries, then who is similar action elsewhere, reels off a list of dos and influenced how certain managers view soliciting whom? The consensus view among don’ts for different markets. the various ways in which AIFMD might be the advisors that spoke to AVCJ is this constitutes At one extreme sits the UK, where a GP can outmaneuvered, honestly or otherwise. When a GP fulfilling its fiduciary responsibilities to engage in a variety of pre-marketing activities the legislation was first announced, a number existing investors, not subtle pitch for a new fund. – sending emails, making presentations, issuing of Asia-based GPs indicated they would source But it shows how managers have become wary. pitch books, circulating draft private placement commitments out of Europe through reverse One approach taken by some managers is memoranda – provided they don’t involve near inquiries from investors aware of their fundraising informing LPs that after July 22, 2013 they will final form constitutional documents. At the plans. Fast forward to the present and their receive no further communication and must get other: the Netherlands, where any information, enthusiasm for this approach has been dimmed in touch directly if they want further information. written or oral, citing a specific fund is deemed to by uncertainty over the potential regulatory Alternatively, a manager might avoid marketing. response. regulatory issues by marketing separate Opinion is divided as to which jurisdiction The message coming out of a is most stringent on marketing. number of European jurisdictions Sweden is cited by several is that reverse solicitation is not a Marketing under EU member states’ national advisors as tough if not tougher mechanism around which a marketing private placement regimes than the Netherlands, although program can be structured. France’s Concept Notification Additional both jurisdictions are said to Financial Markets Authority (AMF) of marketing or authorization requirements have relatively straightforward has said reverse inquiries must relate UK registration processes. Sweden to specific products and refer to Germany processes applications in a few them by name; a broad request for France weeks, while the Netherlands information on any future fund is not Italy - - follows the notification procedure, acceptable. The FCA in the UK also Spain - - although attestation is required issued notice that widespread abuse of Portugal - - - from a regulator. its accommodating stance on reverse Sweden ? By contrast, registration solicitation would result in tighter Denmark in Denmark and Germany is guidance. Finland complicated by the need for a “Our understanding is that because Ireland ? ? depository. Even though the system the burden of proof is so onerous, Luxembourg created by Germany’s Federal only the largest and biggest brand Austria - - Financial Supervisory Authority name firms can to some degree rely Netherlands (BaFin) is “depo-light” – unlike on making a case that inbound calls Belgium Denmark, the depository can be were truly made by these investors,” Note: Correct as of December 2014 Straightforward anywhere within the EU – it can still Source: PwC Moderate says Vincent Ng, partner at placement Challenging be a hindrance. agent Atlantic Pacific Capital. “If you are Must also have local agent “It is not just the presence of a lower mid-market fund, the chances an additional service provider that of an LP calling you directly without any degree accounts, which can be structured so they don’t managers otherwise wouldn’t have to think of shoving or hinting are small.” count as funds or AIFs. However, the same issue about or pay for, but the time and cost involved One consistent piece of advice amongst all of credibility crops up. The GP must genuinely be in going through the BaFin application where the uncertainty is that GPs should track their able to offer a separate account – and have prior there is no guarantee of success,” says Shearman communications carefully, just in case they experience running them – while the LP should & Sterling’s Adams. “Some GPs are reluctant to are asked to present evidence that backs up a be sufficiently experienced and well-capitalized follow that route unless they have a good sense contested claim of reverse solicitation. to accept one. that there is a huge opportunity to raise capital “We’ve had plain vanilla reverse solicitations,” “On the basis that everything is judged on in Germany.” notes one Asia-based manager who is currently hindsight, if at the end of the process all the GP A potential workaround is to target a German fundraising. “Someone heard about us – we don’t has done is gather a load of commitments into institution with a presence outside of Europe, know how, they’ve never met any of us – and a fund, it raises a question mark over whether such as a fund-of-funds that has an office in they literally called the front desk. They wanted they were trying to market separate accounts Hong Kong. Here, too, care is required. This to know more about the fund so we asked for an or market their fund via the back door,” says approach is acceptable provided all marketing email confirming the phone conversation and Dechert’s Black. takes place in Hong Kong and the subscription logged it into our system. That is very rare. The documents are signed there. But the regulator bigger, savvier LPs just send us reverse solicitation Marketing mechanics is likely to look through any structure to letters. They know who is in the market.” Infused in this debate are the different lines the ultimate investor, so if a GP receives the An added complication is what to do about jurisdictions have drawn in terms of how far a completed subscription documents and finds existing investors. Some GPs are advised to GP can go before pre-marketing becomes actual they have been signed in Germany it could pose scrutinize materials presented at annual general marketing and therefore requires registration or a problem. meetings for any mention of a successor fund. notification. “If it is clearly an EU organization and the

8 avcj.com | February 03 2015 | Volume 28 | Number 05 COVER STORY [email protected]

decisions are being made in the EU and you try Initial fears that GPs would have to disclose “I don’t see a lot of people lining up to take to get around it by pretending the decisions individual remuneration have abated. The annual advantage of the third-country passport because are not being made in the EU, the regulators report submitted when marketing in the EU as an what that is essentially going to do is expose are going to see through that very quickly,” says AIF or on a private placement basis must reveal the third-country management company to Oliver Morris, director in the advisory department the number of staff and the size of the overall European regulation,” says Dechert’s Black. “Most at KPMG Channel Islands. remuneration pool. Indeed, in cases where people who want the benefits of the passport are Similar issues of substance apply in situations the staff is so small that it might be possible quite keen to ring-fence the regulatory impact where a manager decides to eschew the private to calculate individual remuneration, separate in an EU entity and are in no rush to subject their placement uncertainty and set up an AIF and legislation can be invoked to maintain privacy. main management company to that regulation.” an AIFM under the passport regime. Several AIFMD goes beyond the private placement industry participants say they have so far seen regimes in dictating how staff are paid – for Favorable future? little demand for such structures: managers don’t example, it outlaws guaranteed bonuses and It points to is a situation in which AIFMD is an want to bear the additional cost when there stipulates the mode and timing of certain accepted, and to some extent contained, part of are still acceptable private placement regimes payments. An Asia-based delegate would be a non-EU manager’s strategy. In this way, AIFMD through which they can enter key markets. drawn into this system and it represents a huge may eventually become part of the fabric of the cultural shift for many managers. industry, just as private equity has largely come Going local Nevertheless, a shift of some sort is all but to terms with the new reality presented by the However, there are a number of ways in which the inevitable. Later this year, the European Securities US Foreign Account Tax Compliance Act (FATCA). passport regime can be accessed cost-effectively. and Markets Authority (ESMA) will issue an On one hand, compliance may become For example, a host of service providers have opinion on whether the passport system that cheaper and easier for managers as familiarity emerged offering to be an Asian GP’s AIFM-for- currently applies to EU-based managers should with the process grows. On the other, LPs may hire. Much like the rent-a-management-company be extended to GPs from outside the region. get more comfortable and sophisticated at approach employed for UCITS, an AIFM in Ireland There is uncertainty as to whether the framework reverse solicitation. or Luxembourg is responsible for multiple sub- outlined is politically tenable or practically There is also the prospect of AIFMD emerging funds under an umbrella vehicle. The cost is lower workable. as a regulatory gold standard. Much as investors than operating independently and setting up “A lot of this comes down to the amount of in the hedge fund space often demand exposure dedicated in house teams, but control is sacrificed pushback you see in wanting this passport in the to a certain strategy through UCITS rather than a at the same time. first place and the willingness of member states Cayman fund, LPs could do the same with AIFMD. An AIFM cannot be a letterbox entity taking to open up to external managers,” says Grant Suzanne McNeil, managing director of depository instructions from the Asia-based manager of a Lee, a director in PwC’s advisory division. “The at Augentius, says she is already seeing this. Augentius was recently approached by a non-EU manager about performing depo-light functions “If European capital is important to you it is because one of its major LPs made it a stipulation to invest in the fund. wise to look at cost-effective ways of having an The cost implications of this would not be onshore structure to meet the requirements and welcomed by smaller managers that still face being squeezed out of the market because they get rid of the uncertainties. If it’s marginal, do don’t have the resources to participate under AIFMD or private placement. you really need Europe?” – Christopher Stuart Sinclair “The bottom line is if European capital is important to you it is wise to look at cost- Cayman Islands-incorporated fund; the latter legislation is there, so to a certain extent hands effective ways of having an onshore structure to is a delegate of the former. What this means are tied so it is more about the detail. But it could meet those requirements and get rid of all those is the AIFM-for-hire retains responsibility for a get to the point where the regulators make it so uncertainties,” says Deloitte’s Stuart Sinclair. “If it’s number of the risk management functions and difficult that people don’t do it.” marginal, do you really need Europe?” has complete oversight regarding portfolio For Asian managers to qualify for access to This begs the question of whether Europe management. It is also able to fire the Asia-based every EU jurisdiction they would have to be needs them. Industry participants already refer delegate if this course of action is in the best brought into the regulatory fold by agreeing to to smaller managers focusing on investors in a interests of shareholders. oversight from a European state of reference. The particular jurisdiction in order to justify the higher “You are relinquishing some power, both process for determining the state of reference regulatory overheads. It will result in less eclectic legally and over the management of your is complex and it is unclear what additional LP bases, and maybe some groups missing out. portfolio. Some of these managers don’t like the demands Europe might try to impose on a “If you are a big beast continually raising idea that they can be fired by an AIFM they feel manager’s local regulator to address areas not money left then you can register a holding group they are hiring, although legally it is the other directly covered by AIFMD. that covers all your funds and the economies way around,” says Shearman & Sterling’s Adams. At the same time, some but not all of scale work,” says Atlantic Pacific’s Ng. “But if Opting for a full AIFM also exposes a jurisdictions are likely to begin to wind down you are a single-entity fund that goes to market manager to a host of requirements that are more their private placement regimes. GPs would every four years, would you want to do this? This demanding than those imposed under private be left with a choice between a passport regulation is penalizing the small guys. LPs only placement regimes. Remuneration is one of the system inside and outside of the EU or reverse get exposure to the biggest guys – but are these more contentious issues. solicitation. the best funds?”

Number 05 | Volume 28 | February 03 2015 | avcj.com 9 FOCUS [email protected] Innovation capital Led by SVB India, venture debt providers are beginning to take root in India. Can this nascent asset class replicated its success in developed markets and become a viable option for domestic start-ups?

TEMASEK HOLDINGS HAS BECOME THE parent, Silicon Valley Bank, which was one of the The problem is that while equity is typically latest investor to enter an embryonic but first movers in the space when it set up in the ideal for long-term costs – such as developing potentially large new market within India venture US in 1983. Silicon Valley Bank is now one of a a technology platform or hiring talent – many capital after agreeing to buy SVB India Finance – number of commercial banks in the US offering start-ups still use this kind of capital to cover a unit of NASDAQ-listed lender Silicon Valley Bank venture debt along with the likes of Square 1 short-term expenses that would be served – for INR2.8 billion ($45 million). The Singapore Bank and Bridge Bank. There are also a host of by debt. The reason for this is that many investment fund will provide loans of up to pure-plays such as Lighthouse Capital Partners, entrepreneurs have found traditional lines of INR150 million on six-months to three-year terms TriplePoint Capital, and Pinnacle Ventures, which credit closed off to them. to some of India’s fastest growing companies. provide financing solutions out of traditional Unitus’ Richards points out that one of the SVB India has been in operation since 2008 venture capital-style fund structures. main challenges of the small and medium-sized and its investment portfolio is impressive. Clients Most venture debt providers broadly operate enterprise (SME) lending ecosystem has been include the likes of Snapdeal, iYogi, BlueStone, in a similar way, offering debt on top of a larger the habit of India’s financial institutions to ignore Capillary, FirstCry, Freecharge and Perfint. SVB round of equity funding. For example, if a start-up riskier, high-growth start-ups in favor of mature India gets its pick of the most-promising start-ups raises a Series A round of $5 million, the venture SMEs that have been around for a while and are because for the last seven years it has enjoyed a debt provider would contribute an additional turning a profit. virtual monopoly over India’s desolate venture layer of $1-2 million. debt space. But things are changing. The investment is normally made alongside Debt demands As the country’s venture capital market venture capital funds with which the bank or When SVB India entered the market in 2008 it did has matured, demand for venture debt has fund has a previous relationship. This is done so by setting itself up as a non-banking finance company (NBFC) and has so far made over 60 India’s venture debt providers investments, adopting the investment model that had already been established in the US: Name Type Established Capital base (US$m) Investment size (US$) It typically invests in start-ups that have raised SBV India NBFC 2008 50 Up to 2.5m their first institutional round and are already IntelleGrow NBFC 2012 30 500,000-1.5m generating a turnover of around $100 million. IntelleGrow, which was set up around Capital Float NBFC 2013 3 40,000-80,000 four years later in 2012, also formed an NBFC Trifecta Fund manager 2014 100* Up to 2.5m but adopted a slightly different strategy by Source: AVCJ Research Note: *fund target targeting earlier-stage businesses. Sanjib Jha, CEO of IntelliGrow, explains that his firm targets grown. More players are coming in to fill the on the assumption that the start-up will raises companies at the pre-Series A stage – when demand-supply gap. SVB India has been joined further rounds from the same VC investors, turnover is still below $10 million – and invests by IntelleGrow, a unit of early stage investor and it helps make the lender comfortable $500,000 to $1.5 million per company. The firm IntelleCap, and Trifecta Capital Partners, a venture enough to provide debt with an average has made 56 investments over the last two years, debt new debt provider set up by Rahul Khanna, three-year amortization. In the case of Silicon primarily working with young, first-generation formerly managing director at Canaan Partners. Valley Bank debt is normally be collateralized entrepreneurs in their late 20s to mid-40s. They are nurturing the green shoots of venture by the company’s assets, including things like “This age group is well educated, I think they debt, but what is its full potential? intellectual property. understand finance very well and they fully “There is definitely increasing interest among The main reason this venture has not taken understand the utility of capital,” Jha says. “Once high-growth, early-stage start-ups in need of a hold in India, or indeed in Asia as a whole, is you understand the dynamic of the uses of different kind of financing instrument,” explains down to the relative immaturity of the venture capital you understand that your balance sheet David Richards, co-founder of Unitus Seed Fund. capital market. Most Indian entrepreneurs only needs to be leveraged.” “The problem is that there have been very few really caught onto to the idea of equity funding Another recent entrant into the market is options for debt, so historically the capital has in the last decade. At same time many promoters Capital Float, also an NBFC, which was set up in not been there.” are unaware of what alternatives are available. 2013 and last year received a $1 million round of “In the past there has been a lack of funding from SAIF India. While the firm classifies Debt demands knowledge about what venture debt is about,” itself under the more generic heading of SME While venture debt may be new phenomenon explains Prashant Mehta, partner at early-stage lender, it nevertheless counts high-growth in India, it is a well-established product among investor Lightbox. “Many start-ups see equity as start-ups such as e-commerce platform Zovi.com start-ups in developed economies. the best alternative for all activities, whether it is among its clients. The most obvious example is SVB India’s appropriate or not.” Not all venture debt lenders have taken the

10 avcj.com | February 03 2015 | Volume 28 | Number 05 FOCUS [email protected]

NBFC route. Khanna’s Trifecta is looking to invest institutional round of equity funding, committing of India you may want to look at venture debt out of a fund structure and is in the process of INR50-150 million per loan at a 16-18% interest sources outside of India that allow you more raising INR3 billion ($50 million) for its maiden rate. flexibility to deploy capital in other markets,” says vehicle. Khanna points out that while NBFCs Lightbox’s Mehta says that more widely Mehta “What might happen is that you start can provide more structured, higher yield, forms availability debt capital could help solve a lot of off focusing on your home market for the first of debt than banks, their investments don’t issues facing Indian start-ups that require a lot of couple of years before you are ready for a global necessarily fall into the category of traditional working capital in order to scale up fast and fulfill market. So if you need capital early on, domestic venture debt, i.e. providing debt alongside a orders, but don’t necessarily want to suffer the providers are a great option.” It is tricky to predict the exact speed at which venture debt is likely to gain traction in India “There is definitely increasing interest among as there is little precedent for it in any other emerging market. However, the consensus view high-growth, early-stage start-ups in need of a is that there is plenty of demand in the start-up community. The question is how long it will take different kind of financing instrument.” – David Richards to develop the ecosystem. IntelleGrow’s Jha believes some indication significant round of equity from a third party. expense of giving up more equity. In the early can be drawn from the way microfinance has “What we are doing with our first fund is stages in particular, India-based investors offering evolved. In 2004, the ecosystem in India was very modeling a product based on some of the best rupee-denominated debt might be a perfect small and people wondered whether it would practices we have seen deployed the world over,” solution. even be $200 million market, but today it is says Khanna. “In lots of ways it is a three-way deal However, there is now also demand for debt worth around $10 billion. – the company, the equity provider, and us. For from international sources, with many start- “Early-stage lending and venture debt is now us to make our target returns [a 17% gross IRR] ups looking to use a combination of local and at the stage microfinance was at in 2004,” says we need the appropriate level of equity support offshore financing solutions. This is because Jha. “Temasek’s acquisition of SVB India comes at to help us manage the risk of backing a high- India’s capital controls may make it difficult for a time when the market is heating up, and more growth, asset light start-up.” a start-up that receives venture debt funding in players like us are arriving. It is a learning curve, Like IntelleGrow, Trifecta is targeting rupee to deploy it outside of the country. and it might take another three years, but it will businesses at an earlier stage than SVB. It will “It differs from firm to firm but if your be up to the incumbents to prove that there is a back start-ups that are in the market for their first company is thinking about operations outside market.”

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To subscribe, call Sally Yip at +(852) 3411 4921 or email [email protected] avcj.com DEAL OF THE WEEK [email protected] / [email protected] Longreach puts a ring on it

IS THE SPIRIT OF ROMANCE EBBING AWAY operating in the segment below Cartier, Bulgari billion for the year ended September 2014, up in Japan? Naoki Sawano, president of bridal and Tiffany. The company operates under from JPY13.7 billion in 2013 and JPY12.2 billion jewelry specialist Primo Japan, suggested as three brands – I-Primo, Lazare Diamond and in 2010. much a couple of years ago. He held a trend Selexia – and seeks to differentiate itself from While growth and operational efficiencies are among young people “to think of the proposal mainstream jewelry retailers by offering a expected from Japan – which accounts for the and the engagement ring as two separate things” focused, high-quality service with an attractive vast majority of Primo’s sales – the combination as partly responsible for a drop in the percentage price proposition. of high quality products of couples purchasing engagement rings. In addition to 76 stores in and services combined with As Sawano acknowledged, there are other its Japan, the company has 10 affordable price points is tipped factors at work – not least Japan’s falling birth outlets in Taiwan and two in as a potential hit in China. rate and aging population. In late 2013, the Hong Kong. Primo also has a “It is not a jewelry business, number of people aged 65 and over crossed presence in Tel Aviv through but a bridal jewelry service – a the 25% threshold for the first time. This share is which it sources diamonds highly targeted segment in expected to reach 40% by 2060. directly from the market as which it is easy to recognize the Regional expansion is therefore a priority opposed to relying on the costlier Primo Japan: Ring masters value proposition,” says a source for Primo and this initiative will be supported broker channel. familiar with the transaction. by The Longreach Group, which has bought International expansion began in 2007 when “It is a good targeted play for China because it the business for a reported JPY20 billion ($170 the company opened its first store in Taiwan. It is about aspiring middle class people getting million). Mainland China is a key target, with the was under the previous owner, Baring Private married, not about party officials giving gifts.” GP hoping to replicate earlier successes in taking Equity Asia, that the Hong Kong market was Should the business achieve the scale it is Japanese companies cross-border. penetrated as well. The PE firm bought Primo in targeting, three viable exit paths emerge: an IPO, Founded in 1999, Primo produces semi- early 2011 for an undisclosed sum from a group a trade sale to a strategic buyer, or secondary customized bridal jewelry, including engagement of investors led by Goldman Sachs and Risa buyout – which would put Primo into its fourth and wedding rings, for middle class consumers, Partners. Primo reported annual sales of JPY15.7 pair of private equity hands. CDC banks on rail to share the wealth

UTTAR PRADESH, THE MOST POPULOUS is the logical mode of transport for containers nearly 1,500 jobs directly but also a further 400 state in India, is served by just two rail freight and bulk goods moving from regions located shorter-term construction jobs. In addition, container terminals. They are located in the deep inland.” the company plans to develop a food park northern industrial hotbed of Kanpur, with one The state-owned Indian Railways opened in Bihar that will provide work for 1,800 more operated by Pristine Logistics & InfraProjects and up its freight transportation segment to private people. One of India’s largest fruit, vegetable the other by Concor. investors under public-private partnerships (PPP) and dairy producing states, Bihar is held back Bihar, located to the east of Uttar Pradesh is a few years ago. It generated by the absence of fast, reliable even more poorly served. Pristine’s new terminal about $15 million in revenue and temperature-controlled in Patna, the state capital, has the potential to from freight transport in 2014. transportation services. The revitalize local communities by allowing farmers Pristine’s operations are profitable park will bring food processing, to get their produce to market more easily. and the company will use the storage and modern transport Last week, CDC Group, a UK-based new investment to develop services to rural communities. development financial institution, endorsed the eight greenfield terminals across In recent years, Maharashtra notion of economic empowerment through northern, central and eastern and the New Delhi National logistics by investing $25 million in Pristine. The India. These will include both bulk Rail freight: Goods to market Capital Region have routinely company, which provides rail freight services and container handling facilities. accounted for approximately in rural and under-served parts of the country, “Indian Railways has made very positive noises half of the foreign direct investment flowing previously secured approximately $10 million about private investment in rail infrastructure into India. The combined share for Orissa, Uttar from local PE investor UTI Capital in 2012. and we hope this will translate into a smooth Pradesh, Bihar and Madhya Pradesh – Pristine’s “Efficient terminal infrastructure is necessary regulatory environment. Local governments are areas of focus – has been in the low single digits. for businesses to be able to trade,” says Rohit encouraging of such improvements as it helps CDC expects Prinstine’s operation to grow Anand, an investment director on CDC’s direct create business and employment opportunities significantly over the coming years. The group equities team. “Given the large distances in India, in the region, “adds Anand. has already brought in a rail freight industry and sometimes challenging road conditions, rail CDC’s investment will not only create veteran to sit on the company’s board.

12 avcj.com | February 03 2015 | Volume 28 | Number 05 DEAL OF THE WEEK / FUNDS [email protected] / [email protected] Fortune backs Huimin’s B2C-B2B switch

HUIMIN STARTED OUT IN IN 2012 AS AN Zheshang Investment Management, and Xitai municipalities. It adds approximately 1,000 online B2C platform in 2012, enabling Chinese Sheng, co-founder of Hongtai Fund. outlets to its network every day and wants to consumers to order daily household items from By helping small supermarkets to source reach 250,000 by the end of the year, with a focus small-scale supermarkets in their neighborhood. goods from wholesalers, the company reduces in top-tier cities. The supermarkets took care of the delivery and the workload for shopkeepers, many of who are According to He, Huimin’s warehousing, Huimin got a commission on each transaction. husband-and-wife teams. “They can’t bargain distribution and service quality are superior to However, after two years the company was still much with wholesalers as they’re only stocking those of e-commerce giants like JD.com and burning cash and generating zero profit. small quantities, so the cost price is high. There Alibaba Group’s Taobao Marketplace and Tmall. “They spent a lot on promotion,” says Shixiang are also risks in terms of buying counterfeit While JD.com builds out self-run logistics He, an investment manager at -based products from different agents,” systems and warehouses, Fortune Capital. “Also, when customers ordered He says. Huimin is able to rely on the products online, Huimin didn’t know whether Huimin buys in bulk so gets supermarkets in its network to the supermarkets had sufficient . Even better prices. It also offers greater provide warehousing services. He if supermarkets did have the right items, they supply chain transparency, notes that JD.com is still making weren’t necessarily willing to deliver when minimizing concerns about a loss because it spent so much customers ordered just two bottles of water.” product safety. From the on logistics. The chairman, Yichun Zhang, responded by manufacturers and wholesalers’ Huimin contrasts with shifting to a B2B model, serving as a commercial perspective, it is easier to manage Hiumin: Supermarket solution Alibaba in that it does not rely logistics provider that connects supermarkets one customer relationship than on outsourced delivery services. and manufacturers. Last week, Huimin raised hundreds. In addition, prices are more stable. “Using third-party delivery firms can result in $100 million in a Series A round led by Fortune There are over 2 million community-level safety issues,” He says. “Customers using Huimin Capital, which accounted for one third of the supermarkets and convenience stores in China, enjoy cheap delivery services provided by the total capital committed. Other participants and Huimin now works with nearly 100,000 supermarkets because they are so close by. This included GP Capital, CITIC Private Equity, Zhejiang of them across more than 30 provinces and operating model is much more convenient.” Hahn gets $1.9b for two funds

CHRISTMAS HOLIDAYS ARE A RARITY AT with local manufacturer Hankook Tire to acquire $10.8 billion in 2014, with buyouts accounting Hahn & Co. The Korean buyout firm’s acquisition the asset, but its individual contribution still came for $7.7 billion of the total. The country’s share of of Posfine, a slag powder business owned by to around $2.6 billion – well beyond the capacity Asia-wide buyouts came to 26.7%, up from 17.2% steelmaker Posco, closed on December 30. of the firm’s first fund, which closed at $750 in 2013. Two deals really moved the needle in The 2013 seasonal period was dominated by million in August 2011. 2014 – HVCC and ’s $1.93 billion negotiations over a majority stake in Hanjin’s bulk Given that Fund II launched in mid-July acquisition of Tyco International’s Korea unit. and liquefied natural gas shipping businesses. and spent about five months However, Hahn believes that A year earlier it was another carrier Korea Line, in the market before closing at foreign PE firms are losing ground although no deal went through. the hard cap, there was clearly to local players such as MBK For Scott Hahn, the PE firm’s CEO, who was demand from LPs to participate Partners, Vogo Investment, IMM previously CIO at Morgan Stanley Private Equity in Korea’s robust buyout story, Private Equity and Hahn & Co (all Asia, working Christmases have become par for so Hahn & Co. invited them to of which are registered with the the course. Sellers in Korea are often set year-end take some direct exposure. The Korean regulator). These firms deadlines for completing a transaction and this National Pension Service is also contributed about 45% of the leads to a rush of activity in December. understood to be involved. Scott Hahn: Busy December $18 billion in disclosed buyout However, December 2014 was particularly “People are now trying to get deal flow since 2013. This is nearly busy or Hahn & Co. Before the documents were increasingly custom-tailored fund products with twice the share of the big regional and global signed for Posfine, the firm closed its second fund different economics and fund life. There is going funds, although MBK is a large regional firm. at $1.2 billion and agreed a $3.6 billion buyout to be more creativity in terms of fund structure “The market is significantly skewed towards of Halla Visteon Climate Control Corporation and design,” Hahn says of the decision to raise a the local private equity players because there is a (HVCC). In addition, a $700 million co-investment co-investment vehicle alongside the main co- lot of capital available in Korea, more experience vehicle was raised to support the HVCC deal. mingled fund. among the local managers, and in many cases Extra capital was required due to the sheer According to AVCJ Research, private equity they are the preferred buyers for businesses,” says size of the transaction. Hahn & Co. teamed up investment in South Korea reached a record Hahn.

Number 05 | Volume 28 | February 03 2015 | avcj.com 13 12th Annual Private Equity & Venture Forum & New Zealand 2015 4-6 March • The Westin Sydney

REDISCOVERING THE OPPORTUNITIES IN PRIVATE MARKETS Senior industry professionals confirmed to speak include: WEEKSONLY LEFT 4 Marcus Simpson John Haddock BOOK NOW! Head of Global Private Equity Managing Director and QIC Chief Executive Officer CHAMP PRIVATE EQUITY

Neil Stanford David Simons Investment Manager - Director, Private Equity Private Equity FUTURE FUND HOSTPLUS

Natalie Meyenn Klaus Bjørn Rühne Ben Frewin Head of Private Equity Partner Managing Director MLC ATP PEP ARCHER CAPITAL

Tim Martin Jessica Archibald Clive Boyce Partner Managing Director Investment Manager CRESCENT CAPITAL TOP TIER CAPITAL PARTNERS FUNDS SA PARTNERS

Benjamin C. Gray Simon C. Moore Michael Weaver Managing Partner Managing Director Manager, Private Markets TPG CAPITAL THE CARLYLE GROUP SUNSUPER PTY LTD

Padmanabh (Paddy) Sinha Robert Credaro Steve Martinez Managing Partner, Head of Growth Assets Head of Asia-Pacific Private Equity FIRST STATE SUPER Snr. Partner, Private Equity TATA CAPITAL APOLLO MANAGEMENT, L.P.

For the latest programme and speaker line-up, visit avcjausnz.com Registration: Carolyn Law T: +852 3411 4837 E: [email protected] Sponsorship: Darryl Mag T: +852 3411 4919 E: [email protected] Enquiry

Co-Sponsors

Supporting Organisations Media Partners

Join your peers Scan this QR code with your mobile phone to review avcjausnz.com #avcjausnz the event latest updates 12th Annual Private Equity & Venture Forum BERT KOTH | INDUSTRY Q&A Australia & [email protected] New Zealand 2015 4-6 March • The Westin Sydney Buried treasures For resources-focused GP Denham Capital, the commodities downturn has thrown up some interesting opportunities. Bert Koth, the firm’s Perth-based managing director, explains why his eye is now on Asia

Q: What sort of opportunities unrealistically expensive for that most of a mining asset’s does Denham target and how running projects – valuations operating costs are in emerging does your strategy differ from were too high and the execution market currencies and revenue is traditional PE? costs for business plans were often in US dollars, by and large REDISCOVERING THE OPPORTUNITIES IN PRIVATE MARKETS A: We try to de-risk the asset by too high. We looked at hundreds falling oil prices will again be WEEKSONLY LEFT 4 focusing on intrinsic value- of projects with only a handful beneficial. Senior industry professionals confirmed to speak include: add. In the current metals and making any sense. Only with Marcus Simpson John Haddock BOOK NOW! mining market there is a scarcity the funding crisis have we been Q: How much longer will the Head of Global Private Equity Managing Director and of developmental capital so able to find attractive terms. status quo in the commodities QIC Chief Executive Officer we tend to take control of Pembroke and Auctus are new market remain? CHAMP PRIVATE EQUITY undercapitalized – and in some companies founded with our A: Commodities prices will cases under-managed – assets capital and led by management continue to fall for the next two Neil Stanford David Simons Investment Manager - Director, Private Equity and bring them into positive teams with a track record of years and then bottom out. You Private Equity FUTURE FUND cash-flow. We improve the assets “The people successfully building mining will need to wait six years or so HOSTPLUS by exploring within the existing projects ahead of time and for a cyclical uplift in metals and mine plan and expanding the life come before below budget. mining. This shouldn’t come as Natalie Meyenn Klaus Bjørn Rühne Ben Frewin of the mine. The main difference surprise because we are at the Head of Private Equity Partner Managing Director is that we do not use financial the asset – if we Q: Do you expect to see more end of the largest super cycle in MLC ATP PEP ARCHER CAPITAL engineering or leverage to can’t find the deals in the wider Asia region? history, and it was exacerbated create value. We spend a lot of A: Pembroke, which is developing by people talking up the market. time trying to identify the best right people then metallurgical coal assets, already The valuation of the average Tim Martin Jessica Archibald Clive Boyce operating team. The people has a mandate for Indonesia junior miner is 90% down from Partner Managing Director Investment Manager we are happy to come before the asset – if we and we will continue to look at its peak while the average cash CRESCENT CAPITAL TOP TIER CAPITAL PARTNERS FUNDS SA opportunities in a number of lifespan on the balance sheets PARTNERS can’t find the right people then let go of a good we are happy to let go of a good asset” countries, primarily in Southeast of these companies is less than Benjamin C. Gray Simon C. Moore Michael Weaver asset. Asia. We do believe the Pacific six months. If you participated Managing Partner Managing Director Manager, Private Markets Rim countries, particularly in every single IPO of a junior TPG CAPITAL THE CARLYLE GROUP SUNSUPER PTY LTD Q: What are the trends driving advanced exploration, but now Indonesia and Papua New mining company in the last the current crisis in the mining you can only create value by Guinea, are among the most six years, you would have lost industry? going into producing assets geologically prospective in the around 50% of your money. Padmanabh (Paddy) Sinha Robert Credaro Steve Martinez A: If you look at the current funding and at a late stage. So where world. If you take a long-term Managing Partner, Head of Growth Assets Head of Asia-Pacific crisis in the junior mining sector, you once had longer holding view, eventually we will seek to Q: What is your medium-term Snr. Partner, Private Equity Private Equity FIRST STATE SUPER the main cause is not slowing periods and higher risk, now you establish more mining platforms outlook for PE investors TATA CAPITAL APOLLO MANAGEMENT, L.P. economic growth in China, have shorter holding periods elsewhere in Asia. targeting mining assets? For the latest programme and speaker line-up, visit avcjausnz.com or the debt crisis in the US or and lower risk. It is positive for A: I regard the current situation as Europe; it is that junior mining the industry because a lot of Q: How has the fall in oil prices one of the best, if not the best, Registration: Carolyn Law T: +852 3411 4837 E: [email protected] companies trading on the public these companies are not viable impacted the mining and entry points in a decade for the Sponsorship: Darryl Mag T: +852 3411 4919 E: [email protected] Enquiry markets were over promoted and the management teams are metals industry? sector-focused investor who and overvalued. You had too mediocre; they are just going to A: From a mining perspective I knows what they are doing, Co-Sponsors many people running around run out of cash and disappear always regard oil prices as a dirty because strictly-speaking most trying to sell a beautiful story from the market. hedge. If oil prices go down then people who invest in metals about perpetual growth and the operating costs of mining and mining don’t. The second the risks were never properly Q: You did two mining deals in operations go down – energy positive note is that if most understood or analyzed. Australia in 2014. What were costs usually comprise 20-25% projects are not getting funded the driving factors? of the overall operational cost then demand might exceed Q: Has this changed the way you A: Auctus Minerals and Pembroke of a mining asset. Also, if you supply sooner than most people invest? Resources are the first two look at long-term exchange rate expect, and that will lift prices Supporting Organisations Media Partners A: The whole money-making metal and mining platforms correlations, usually when oil up. It is not going to happen paradigm in metals and mining we have done in Australia. The prices go down, the US dollar tomorrow, or next year, but it is that has changed. Five or six reason we waited was because, goes up and emerging market paving the groundwork for the years ago capital might go into until recently, Australia was currencies go down. Given next up-cycle. Join your peers Scan this QR code with your mobile phone to review avcjausnz.com #avcjausnz the event latest updates Number 05 | Volume 28 | February 03 2015 | avcj.com 15 E:

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