Asia’s News Source avcj.com November 18 2014 Volume 27 Number 43

EDITOR’S VIEWPOINT The VC valuation bubble may burst, but not with dotcom era consequences Page 3

NEWS Auda, Baring Asia, CITIC PE, CVC, Hillhouse, Hony, KKR, LACERS, Lexington, LGT, Lightspeed China, MBK, NDE, OMERS, OTPP, Quadrant, RRJ, SAIF, Silver Lake, TPG Page 4

DEAL OF THE WEEK Japan’s J-Star combines hospice care businesses Page 13

PROFILE CHAMP Private Equity’s Economies of scale Joseph Skrzynski on the birth of Australian PE Are ever-increasing fund sizes evidence of visionary GP or a greedy one? Page 7 Page 14

FOCUS DEAL OF THE WEEK

Comfort with credit Beijing to the beach Dealing with downside protection in Asia Page 11 PE sees Maldives as China tourist hotbed Page 13 15th Annual Private Equity & Venture Forum India 2014 2-3 December • Taj Lands End, Mumbai

MODI-F.I.E.D. - FUELLING INDIA'S ECONOMIC DEVELOPMENT REGISTER What’s new this year? NOW!  An insightful panel on the secondary buyout appetite: Will the serving become bigger and what role can restructuring play?

Darren Jason Markus Massara Sambanju Ableitinger Managing Head of Asia, Private MD, Co-head Partner Equity Secondaries of Investment NEWQUEST DEUTSCHE BANK Management Asia CAPITAL PRIVATE EQUITY CAPITAL PARTNERS DYNAMICS

Registration  PLUS an interactive session on Enquiries: entrepreneurship and : Yeni Kittrell T: +852 3411 4836 Innovating for a better India? E: [email protected]

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

Asia Series Sponsor Co-Sponsors

Gaja Capital India’s Meritocratic Capital TM

Knowledge Sponsors Luncheon Host Cocktail Reception Host Exhibitor

Scan this QR code with your mobile Join your peers phone to review AVCJ India avcjindia.com #avcjindia latest updates 15th Annual Private Equity & Venture Forum EDITOR’S VIEWPOINT India 2014 [email protected]

2-3 December • Taj Lands End, Mumbai Managing Editor Tim Burroughs (852) 3411 4909 Staff Writers Andrew Woodman (852) 3411 4852 Winnie Liu (852) 3411 4907 Bubble talk Creative Director Dicky Tang Designers Catherine Chau, Edith Leung, IN BEIJING AND SILICON VALLEY, THERE IS half of the country’s 600 million internet users Mansfield Hor, Tony Chow cause for concern at the flood of capital entering are currently online shoppers. The converts will the technology space. It draws comparisons with increasingly buy via mobile devices. “It is only a Senior Research Manager Helen Lee the dotcom bubble era – but VCs at the AVCJ bubble if everyone is chasing the same trend, Research Associates Forum were keen to play down the similarities. and I think as an industry we are staying ahead Herbert Yum, Isas Chu, The primary criticism is that direct of the curve,” Ron Cao, managing director at Jason Chong, Kaho Mak MODI-F.I.E.D. - FUELLING INDIA'S ECONOMIC DEVELOPMENT comparisons are fundamentally flawed. If Lightspeed China Partners, told the forum. Circulation Manager the dotcom bubble was inflated by internet China VC fundraising stands at $6.4 billion Sally Yip hype, the businesses now commanding high so far this year, the most since 2011. The surge Circulation Administrator Prudence Lau valuations are benefiting from an environment is driven by an uptick in exits in recent years as Subscription Sales Executive REGISTER in which the internet is delivering on its promise. US IPOs resumed for Chinese companies and Jade Chan What’s new this year? the likes of Baidu, Alibaba Group and Tencent There are more internet users, faster connections, Manager, Delegate Sales more mobile devices and better e-commerce. Holdings went on the acquisition trail. Pauline Chen NOW! And then the VC industry itself is arguably It is a similar story globally, with LP sentiment Director, Business Development  An insightful panel on the secondary buyout wiser. According to Preqin, in 2000, a total of buoyed by improving returns. Preqin data on VC Darryl Mag 463 funds raised $77 billion. So far this year, $38 performance show a spike in performance for appetite: Will the serving become bigger and what Manager, Business Development billion has gone into 220 funds. Fewer funds are funds from the 2007-2010 vintages. Median IRR Anil Nathani, Samuel Lau role can restructuring play? backing start-ups that tend to be less capital- for the 2010 vintage is 14.5%; between 2000 and Sales Coordinator intensive than before. The lower cost of starting 2006, no vintage surpassed 5%. Debbie Koo a business – and the increased capacity to do it This is all very encouraging but it does not Darren Jason Markus from anywhere in the world – has also opened remove the bubble debate, merely put it in a Conference Managers Jonathon Cohen, Sarah Doyle, Massara Sambanju Ableitinger the door to more angel investors. proper context. Valuations have spiraled upwards Conference Administrator Managing Head of Asia, Private MD, Co-head Certain companies are spending longer and – from a China perspective – when VCs talk Amelie Poon Partner Equity Secondaries of Investment building scale under private ownership. Scott about not having time to conduct as much due Conference Coordinator Fiona Keung, Jovial Chung NEWQUEST DEUTSCHE BANK Management Asia Kupor, managing partner with Andreessen diligence as they would like and companies CAPITAL PRIVATE EQUITY CAPITAL Horowitz, told the AVCJ Forum there are receiving funding that don’t deserve it (both Publishing Director PARTNERS DYNAMICS two major trends at work in this context: the issues came up at the AVCJ Forum), you don’t Allen Lee significant entry of new players into the private expect them to stay there. But at the same time, Managing Director capital markets; and the fact that 90% of the predictions of a brutal, dotcom bubble-style Jonathon Whiteley Registration largest venture capital rounds in history have fallout might be wide of the mark.  PLUS an interactive session on Enquiries: happened in the last five years. Public market players feature ever more prominently in these. Yeni Kittrell Incisive Media entrepreneurship and venture capital: China-focused VCs would add that their Unit 1401 Devon House, Taikoo Place T: +852 3411 4836 investments are still on steroids thanks to the Tim Burroughs 979 King’s Road, Quarry Bay, Innovating for a better India? Hong Kong E: [email protected] combination of a rising middle class and the Managing Editor T. (852) 3411-4900 disruption effect of the mobile economy. Only Asian Venture Capital Journal F. (852) 3411-4999 E. [email protected] URL. avcj.com For the latest programme and speaker line-up, visit avcjindia.com Global venture capital fund performance by vintage Beijing Representative Office No.1-2-(2)-B-A554, 1st Building, 25 No.66 Nanshatan, Asia Series Sponsor Co-Sponsors Chaoyang District, Beijing, 20 People’s Republic of China T. (86) 10 5869 6203 15 F. (86) 10 5869 6205 E. [email protected] 10 Gaja Capital 5 India’s Meritocratic Capital TM 0 The Publisher reserves all rights herein. Reproduction in whole or in part is permitted only with the written consent of -5 AVCJ Group Limited. Net IRR since Inception (%) Inception Net IRR since -10 ISSN 1817-1648 Copyright © 2014 Knowledge Sponsors Luncheon Host Cocktail Reception Host Exhibitor -15 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Top quartile Median net IRR Bottom quartile Source: Preqin Scan this QR code with your mobile Join your peers phone to review AVCJ India #avcjindia latest updates avcjindia.com Number 43 | Volume 27 | November 18 2014 | avcj.com 3 NEWS

How Silver Lake secured FDI, but the next phase will see Chinese capital AVCJ FORUM going abroad and bringing back quality services.” Alibaba deal – AVCJ Forum John Lin, managing partner with NDE Capital, VCs cast doubt on dotcom Silver Lake’s 2.2% stake in Alibaba Group is worth said his firm is already looking to tap demand more than $6 billion at current market prices, from China’s middle class for overseas products era comparisons but internal approval for the original investment and services by investing in brands overseas Venture capital investors played down in the Chinese e-commerce player in 2011 did that are undervalued in their own markets, and comparisons between the current soaring not come easily. The technology-focused private bringing them into China. valuations in the technology space and the equity firm describes its investment approach dotcom bubble era. Ron Cao, managing director as disciplined, valuation sensitive and control- with Lightspeed China Partners, said the key oriented. Alibaba set two records: the highest ASIA PACIFIC difference between today and the dotcom valuation Silver Lake had ever paid for a deal era was the size of the opportunity. “It is only a in absolute terms and multiple terms; and the RRJ leads $1b investment bubble if everyone is chasing the same trend, lowest percentage ownership. and I think as an industry we are staying ahead in Cheniere Energy of the curve,” he said. David Yuan, a partner RRJ Capital has agreed to invest $1 billion in with Redpoint Ventures, added that there are convertible notes issued by Cheniere Energy, a still are some worrying side-effects to surging US-based liquefied natural gas (LNG) producer. investment: some companies are raising more The PE firm will invest from RRJ Capital II, but it money than they need, while others that could transfer a portion of the notes to Temasek shouldn’t get funding are getting funding. Holdings. Location, talent will define CVC’s Hemal Mirani to Asia’s GP winners rejoin HarbourVest As the Asia’s PE market matures, the winners will Hemal Mirani, head of Asia investor relations be defined by those who not only leverage their “Alibaba was at the far end of an extreme for at CVC Capital Partners, will join HarbourVest local presence, but also retain the necessary us format-wise,” Kenneth Hao, managing partner Partners as a managing director. She previously talent, say industry participants. Speaking at the and managing director at Silver Lake, told the spent over 11 years at HarbourVest before AVCJ Forum, Marshall Pare, managing director AVCJ Forum. “I remember one of my colleagues leaving for CVC in 2009. Mirani will have senior with Lexington Partners, described a market on the investment committee saying, ‘So your responsibilities covering investor relations as well in which GPs are under increasing pressure base case is an IPO with a $100 billion valuation. as operations and logistics. from larger firms with enormous resources How many times has that happened before?’ and experience at their disposal. Rodney Muse, At the time the answer was zero. It seems quite LACERS commits to Baring managing partner with Navis Capital Partners, conservative now.” said the reason his firm continues to survive in Silver Lake invested a reported $300 million Asia’s sixth fund this environment is because it is locally driven. as part of a consortium that paid $2 billion for a Los Angeles City Employees’ Retirement System 5.7% stake. Alibaba went public in the US earlier (LACERS) has committed up to $25 million to LPs offer mixed views on this year, raising $25 billion in the largest IPO Baring Private Equity Asia’s sixth pan-regional ever seen globally. Silver Lake made a partial exit fund. Baring Asia Private Equity Fund VI reached GP ownership through the offering. a first close of $3.2 billion last month and is Taking a stake in the GP offers benefits to In 2011, however, it wasn’t only the mismatch expected to close at the hard cap of $3.85 billion. LPs looking to align interests, but not all are with Silver Lake’s typical transaction that was willing to do so at the cost of a fund manager’s causing doubts. Alibaba had just spun out OTPP hires Mount Kellett independence. Ivan Vercoutere, CIO at LGT its Alipay payments business, briefly causing Capital Partners, told the AVCJ Forum that while tensions with major shareholders Yahoo and executive his firm is willing to be a significant first-close SoftBank. And then the transaction presented Ontario Teachers’ Pension Plan (OTPP) has hired investor, it had refrained from taking an interest to Silver Lake was unusual: it was an entirely Dan Kiang from Mount Kellett Asia as Hong in portfolio GPs because it wants GPs to be secondary offering, creating liquidity for Kong-based director of relationship investing, independent. On the other hand, Jacques employee shareholders. Joseph Tsai, executive with a remit to pursue direct deals across Asia. Demers, global head of investment partners and vice-chairman at Alibaba, admitted that “most The relationship investing strategy is distinct from partnerships at OMERS, stressed that making people would view that scenario as toxic.” Teachers’ Private Capital, which is responsible for sure interests with fund managers were aligned OTPP’s private equity funds and co-investment trumped concerns over independence. activities. of development, industry participants told the More China GPs look to tap AVCJ Forum. “In the next 10 years China will Auda hires FLAG Squadron’s move to the next stage of opening up,” said outbound opportunity Tun Lin, chief economist and executive vice- Eunseok So PE investors are seeing more outbound president at Hony Capital. “In the first phase Auda International has appointed Eunseok So, opportunities as China enters its second stage foreign capital came to China in the form of formerly of FLAG Squadron Asia, as a senior vice

4 avcj.com | November 18 2014 | Volume 27 | Number 43 NEWS

president in its Hong Kong office. A native of KKR, CITIC to buy majority Accel China Capital, has raised $44.2 million South Korea, So spent over three years at FLAG through a US IPO. The company sold 5.52 million Squadron as a vice president. Before that he stake in United Envirotech American Depository Shares at $8 apiece. It worked at Daishin Securities in Seoul. CITIC and KKR have offered to buy a controlling originally planned to sell 12.5 million shares at stake in United Envirotech Limited (UEL) in $10-12 apiece. AUSTRALASIA a deal that values the Chinese waste water treatment company at S$1.9 billion ($1.5 billion). Hillhouse, CITIC PE commit Singapore-listed UEL provides engineering $75m to cancer specialist TPG-owned Inghams sells services to municipal and industrial waste water treatment projects in China, and has clients from Hillhouse Capital and CITIC Private Equity have $138m in real estate assets the chemical, petrochemical and industrial park participated in a RMB450 million ($75 million) TPG Capital-owned Australian poultry producer sectors. round of funding for BeiGene, a Chinese Inghams Enterprises has sold 31 properties to Under the pre-conditional voluntary offer, company that develops drugs to combat cancer. W.P. Carey, a US-based real estate investment CITIC Environment Protection and KKR China The round also included existing angel and trust, for A$157 million ($138 million). Inghams Water Investment will acquire a controlling strategic investors, as well as an undisclosed US- put a portfolio of over 50 industrial and stake in the business through the acquisition of based life sciences-focused public fund. agricultural properties on the market earlier this shares from existing shareholders - including a year. They were expected to fetch up to A$650 separate KKR-owned vehicle - at S$1.65 apiece. million. NORTH ASIA Quadrant’s APN Outdoor Baring Asia buys drug sees 8% jump on debut maker from Tokio Marine Shares in Australian advertising business APN Baring Private Equity Asia has agreed to buy Outdoor close up 4% on their first day of trading. Japan-based Bushu Pharmaceuticals from The company raised A$329.3 million ($289 Tokio Marine Capital at an enterprise valuation million) through its IPO, after pricing the offering of JPY77.3 billion ($670 million). Tokio Marine at A$2.55 per share. Quadrant Private Equity purchased the company from Shionogi & Co. for realized proceeds of around A$210 million and Upon completion of the deal they will provide JPY8.56 billion (then $93 million) in 2010. saw its holding in APN fall from 93.7% to 20%. additional capital to UEL through a subscription to further shares via a private placement worth MBK sells Japan-based KKR adds to Capstone team S$50 million, S$100 million or S$150 million. UEL will remain listed post-transaction. The Yayoi to Orix for $692m in investment will allow the two parties to help North Asia-focused buyout firm MBK Partners has KKR has bulked up its operations capabilities grow the business in China’s rapidly-developing exited Japanese accounting software firm Yayoi in Australia with the addition of Matthew environmental protection sector. to Orix Corp. for JPY80 billion ($692 million). The Claughton as a director with Capstone. He was KKR invested $40 million in UEL last year, company produces packaged software tailored most recently group general manager for Pacific having previously committed $113.8 million to small- and medium-sized enterprises. Brands’ Workwear business unit. to the company through a subscription to convertible bonds in October 2011. “Since Tencent, Line invest $110m 2011, we have been working closely with UEL’s GREATER CHINA strong management team to enhance UEL’s in Korean game developer technological platform and expand its business China’s Tencent Holdings and Japanese Hony-backed Jin Jiang buys through organic and inorganic activities,” said messaging app Line Corp. have invested $110 David Liu, co-head of Asia private equity at KKR million in 4:33 Creative Labs, a South Korean, VC- Louvre Hotels and CEO of KKR China. backed mobile games developer. Shanghai Jin Jiang International, a Chinese hotel The transaction still requires regulatory operator backed by Hony Capital, has agreed to approval. buy Europe’s second-largest hotel group Louvre SOUTH ASIA Hotels from US real estate investor Starwood Capital. The price reportedly exceeded EUR1.2 platform for Chinese art. The platform enables SAIF-backed HomeShop18 billion ($1.5 billion). Paris-based Louvre operates new-generation artists to display their wares more than 1,100 properties in over 40 countries. online, while providing a convenient and safe abandons US IPO trading environment for prospective investors. HomeShop18, an Indian TV shopping network CITIC Securities, Shenzhen and online market place backed by SAIF Partners Sky Solar raises $44.2m in and OCP Asia, has abandoned plans for a US IPO. Capital back art platform This comes during a period of volatility in US CITIC Securities and Shenzhen Capital have scaled back US IPO markets, but also in the wake of the acquisition invested $100 million in a Series B round of Sky Solar Holdings, a Hong Kong-based of HomeShop18’s parent, Network18, by Reliance funding for Hihey.com, an online trading independent power producer backed by IDG- Industries.

Number 43 | Volume 27 | November 18 2014 | avcj.com 5 Customized Research Report Asian Private Equity Data Made Simple

AVCJ Research can provide your firm with timely and accurate research support to help you simplify and expedite your workflow. We conduct in-depth research and provide insightful analysis in a bespoke report that fully meets your data requirements.

AVCJ’s industry standard data is used by the world’s leading firms in their fundraising, investor relations communications and deal due diligence activities. AVCJ Customized Data Service includes:

✔ Pan-Asian Industry Reviews/Regional Reports – timely updates ✔ Specific industry and financing stage research ✔ Comprehensive statistics on investments and funds ✔ Exits strategic analysis ✔ Market peers comparison

To understand how AVCJ Research can help you with your data needs, please call: 852-3411 4961 or email [email protected] avcj.com COVER STORY Customized Research Report [email protected] Asian Private Equity How much is too much? Ever increasing fund sizes have become a fact of life for some private equity firms in Asia. LPs must Data Made Simple distinguish between GPs raising more capital for a valid purpose and GPs doing so simply because they can

IT TOOK AUSTRALIAN GP QUADRANT back. Discipline comes with time. Asian private equity fundraising stands Private Equity just over a month to close its “If you offer them twice the money, some at $49.7 billion so far this year (including seventh fund at A$850 million ($758 million) say they have the ability to scale their strategy incremental as well as final closes) after nosing earlier this year. Although the new vehicle and take twice the money,” he says. “There are ahead of the 2013 total of $49.4 billion. The 2012 was two times oversubscribed, there was no exceptions, particularly in more developed figure of $55.3 billion possibly within reach; substantial increase in fund size on Fund VI, private equity markets. In and neutralize the distorting impact that renminbi- AVCJ Research can provide worth A$750 million. Europe the quality guys got that message a denominated vehicles had on the industry in your firm with timely and The big jump came in the two previous long time ago. In Australia it’s the same; there 2011 and Asia could be on course for its best year vintages, 2007 and 2010, when in each case the are a few managers who have been out there since before the global financial crisis. accurate research support fund expanded by close to 50%. Fund V was for several generations now. They know how big However, the number of funds that have driven by pre-global financial crisis brio, while their market is and what they can do.” attracted capital in 2014 is barely more than 200, to help you simplify and Fund VI was the first to include offshore investors. compared to over 350 in each of 2013 and 2012. expedite your workflow. We Parallels can be drawn with the strong demand Recipe for a fundraise Average vehicle sizes have been on a general for Archer Capital’s fifth fund, which closed in Numerous considerations are woven into the upward trend since 2009, but this year the figure conduct in-depth research late 2011 at A$1.5 billion, but represented a sizing of a fund. There are three primary market- has rocketed to $243 million, up from $135 relatively small increase in size on its predecessor. based reasons why a fund might be larger than million in 2013. For successfully raised funds only, and provide insightful For Archer, the leap was from Fund III to Fund IV, its predecessor: economies and companies the gap increases. analysis in a bespoke report when the corpus grew threefold. are growing, so the average deal size is likely The flight to quality operates differently for This reset in expectations inevitably followed to go up; existing team members are more pan-regional versus single country vehicles, that fully meets your data a bout of exuberance. Australasian managers experienced and new investment professionals largely driven by the perceived opportunities requirements. raised nearly $21 billion between 2005 and have been hired, which means the sourcing net within individual markets. 2007 – sums not matched before or since – and performance suffered. Speaking at last year’s AVCJ Australia Forum, Asia PE fundraising vs. average fund size Peter Wiggs, managing partner at Archer, blamed 100,000 250 AVCJ’s industry standard data is used by the world’s leading firms in their the industry outgrowing its space. “The LPs gave fundraising, investor relations communications and deal due diligence the money to the GPs and the GPs spent it on 80,000 200 dodgy deals and then we all lost it. What do you 60,000 150 activities. AVCJ Customized Data Service includes: do? What I do is I size my market. I reckon I can spend this much money in four years sensibly. 40,000 100 The fact that the market might want to give me US$ million US$ million 20,000 50 ✔ Pan-Asian Industry Reviews/Regional Reports – timely updates twice that amount is irrelevant,” he said. ✔ Specific industry and financing stage research It is a lesson that many managers Asia’s 0 0 emerging markets have yet to learn, or perhaps 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD ✔ Comprehensive statistics on investments and funds are only on the cusp of doing so. The region Average fund size Total funds raised experienced its own pre-financial crisis boom Source: AVCJ Research ✔ Exits strategic analysis and in the flight to quality that followed, LPs flocked to the relatively small number of ✔ Market peers comparison managers with track records and brand names is denser and wider; and the GP has identified Capital-raising for funds targeting China or alongside their strong investment theses. an addressable gap in the market that requires India has slowed from the peak years and the An escalation in fund size across vintages is additional financial firepower. money is flowing to the relatively few managers not a new phenomenon in Asia but the fact it The above are factored in, to whatever degree seen as actual or potential outperformers. continues does beg the question of how much is they may apply to the situation, and ongoing In the recent years, a couple of Indian GPs too much. Is a manager responding to changing deal flow mapping is used to establish what have reduced their fund sizes in response to opportunity set or is he simply being greedy? there is to invest in over the next five years and a changing investment environment. Those Thomas Kubr, executive chairman at Capital how much capital is needed. There may be other currently in the market or about to enter it are To understand how AVCJ Research can help you Dynamics, observes that ambition is not extenuating circumstances, ranging from pure generally seeking to raise roughly the same or with your data needs, please call: 852-3411 4961 or necessarily a bad thing. LPs want alignment of ego to pushing above a certain size threshold so only modestly more than in the previous vintage. interest with GPs – the manager isn’t going to the major LPs consider the fund directly rather The leading China-focused managers, however, email [email protected] make money unless his investors get their cash than referring it to an advisor. are not necessarily being squeezed. avcj.com Number 43 | Volume 27 | November 18 2014 | avcj.com 7 COVER STORY [email protected]

“The global trend among institutional LPs the final consideration was whether it really Fund IV had delivered a net IRR of 10.2% and a is to be increasingly selective in choosing fund wants to invest in a fund targeting substantially multiple of 1.6x as of March, while Fund V was on managers,” says Chris Churl-Min Lee, a Beijing- more than the previous vintage. In one case it an IRR of 9.9% and a total value multiple of 1.19x based associate with Cleary Gottlieb’s fund ended up committing, convinced by the quality as of June. formation practice. of the group and the efforts made to built out “Fund III made LPs interested, so they raised “And when the LPs look at China, they are investment infrastructure; but there have also Fund IV. LPs are still clamoring to get in off the presented with an increasing number of fund been situations in which it said no. back of Fund III but the verdict is still out on managers that are looking to raise offshore A couple of LPs told AVCJ that getting realized performance,” says one industry source funds. While a number of experienced managers comfortable with larger China funds in part familiar with the firm. “Fund IV is predicated on with strong track records have been able to depends on being convinced the managers Nord Anglia [a school operator that went public successfully raise large funds relatively quickly, can execute the kind of larger cross-border in March]. Fund V is still very early in its life cycle first time managers and managers with weaker transactions they say they have in their pipeline. and Fund VI will be a fresh pot of capital. We will track records can face a rather long and difficult Jonathan English, managing director at Portfolio see how history plays out and whether they have fundraising process.” Advisors, puts it in the broader context of GPs managed the evolution properly.” CDH Investments closed its fifth US dollar- having institutionalized platforms capable The formula that served Baring Asia so well denominated China fund earlier this year at of sourcing and dealing with challenging in Fund III – middle-market growth equity and $2.55 billion after raising the hard cap slightly investments, while simultaneously meeting the buyout deals sourced on a proprietary basis, to accommodate investor demand. The process reporting issues that come with running a fund. involving companies that want to scale up – has at least been modified. Fund IV targeted fast-growing companies with enterprise values “Every time you invest in a fund you can dwell of $100-300 million; for Fund VI, the equity check range is $50-300 million. The plan is for quite a long time on the past but you also a diversified portfolio of 20-25 companies, but have to ask yourself who is best positioned to there may be more buyouts at the upper end of the scale. capitalize on whatever opportunities exist in the These could be the same kinds of companies Baring Asia was backing in 2005, but they have – John Morrison market over the next cycle” grown in line with the economic opportunity in the region. Nevertheless, the strategy begs took about 16 months and the fund is $1 “There are other groups in the region that two questions. First, can the PE firm continue billion larger than its predecessor. Hony Capital, would be attempting to make pretty big step- its existing approach to sourcing or will it operating in a friendlier fundraising environment, ups from their predecessor funds but I don’t increasingly end up in auctions against the large closed its fifth China fund at $2.36 billion in early think have gone through the institutionalization global and pan-regional players? Second, does 2012, also $1 billion larger than its predecessor. process,” he says. Baring Asia have the operational capabilities Meanwhile, Boyu Capital and FountainVest Such assessments can equally well be made to deal with the complexities facing larger and Partners upped the size of their second China of the pan-regional managers. Between July 2012 more international companies? funds by 50% and 40%, respectively, although and September 2014, nearly all of the largest AVCJ spoke with several LPs, each of whom both are in the $1-1.5 billion range. global and Asia-based PE firms closed the first discussed concerns about Baring Asia’s fund size John Morrison, managing director at Munich regional vehicles they have raised since the internally before deciding to commit. Private Equity Partners, compares the situation to global financial crisis. Eight GPs collectively raised “In these situations, we have to ask if the a “Darwinian land grab.” Firms are seeking to take $27.2 billion. This is $5.3 billion more than the manager has built the infrastructure, created the advantage of their market position in order to same firms raised for their previous vehicles, and approach and established the processes prior ensure their place among the dominant players in a difficult fundraising environment. to raising the fund or has it raised the fund and for years to come. then tried to reinvest in itself,” one LP explains. He accepts that PE firms are under pressure to Bigger Baring “Baring has built a highly professional structure, meet the ambitions and financial expectations of The missing member from this group – although a multi-office environment we thought worked. its investment professionals. Increasing fund size its previous fund was raised post-crisis – is Baring They have the systems and processes to handle a is one way of achieving this, but the question LPs Private Equity Asia, which is expected to close growth in fund size.” must answer is: Does this change the nature of its sixth pan-regional vehicle at the hard cap of Another LP points to the efforts made in the proposition? $3.85 billion. creating operations, financing and country- “Every time you invest in a fund you can Baring Asia is an interesting case study in that focused teams, as well as developing internship dwell quite a long time on the past but you also the firm has accelerated through the fund sizes and training programs intended to ensure deep have to ask yourself who is best positioned to over the last 10 years. Fund III closed at $490 bench strength. capitalize on whatever opportunities exist in million in 2006 and has since become one of the While Baring Asia can still point to a 17- the market over the next cycle. In a market that best-performing funds for its vintage in Asia and year track record in the region and a core develops as rapidly as Asia, the players at the top globally. This gave momentum to the next two group of partners with experience of multiple end of the market have that depth of cross- vehicles, both of which came in substantially business cycles, it has certainly brought in fresh border experience, that wherewithal to bring in above target at $1.52 billion (2007) and $2.46 talent. When raising Fund IV, the firm had 23 true operational capability.” billion (2011). investment professionals across offices in Hong MPEP has found itself in 2-3 situations where According to separate disclosures by LPs, Kong, Shanghai, Singapore, Tokyo and San

8 avcj.com | November 18 2014 | Volume 27 | Number 43 COVER STORY [email protected]

Francisco. Headcount is now 100, of which 51 are $6 billion in July 2013, KKR opened its seventh a reflection of the level of competition this investment professionals, and offices have been regional base in Singapore and also brought in segment. added in Beijing, Jakarta, Mumbai and Singapore, additional talent, creating a localized operational The largest pure private equity buyout in although the San Francisco presence has gone. presence to complement its already localized 2014 to date is The Carlyle Group’s $1.9 billion There are no guarantees of performance and investment team. Asked whether $6 billion acquisition of security services business ADT a number of industry participants claim that was too big, Joe Bae, KKR’s regional head, told Korea. With debt financing said to be around Baring Asia is raising too much capital and will AVCJ last year that the target was based on the $1.2 billion and equity participation from two struggle. Even if Fund VI performs well, others encouraging returns generated by the more Carlyle funds, there was likely still ample room for in the $3 billion-plus fund size space – that now than $5.5 billion it had deployed in Asia over co-investment. The big minority deal of the year, also includes Affinity Equity Partners, The Carlyle the previous 6-7 years, as well as the increasing which saw 25 investors commit $17 billion to Group, CVC Capital Partners, KKR, RRJ Capital and resources being put on the ground. Sinopec’s retail business, also featured individual TPG Capital – may not. Portfolio Advisors’ English questions how easy check sizes substantial enough for sharing. “It’s not like it doesn’t still cause concern it is to turn $6 billion into $12 billion and what While co-investment tends to be limited to a when CVC, Carlyle and everyone else has raised cost of capital is incurred by each investment handful of large and sophisticated LPs, the level a sizeable fund around the same time,” observes platform. “I would say there is a varying cost of of interest expressed could ultimately tempt one North American LP. “There is a lot of capital at capital at play in terms of what are realistic return a GP – already on course to raise a larger fund that high end of the market.” expectations, what the GP is happy with, and than before – to push the strategy even further. what the LP base is happy with,” he says. “When It is a reminder that ambition or greed on the Expansion plans you start getting to $3.5 billion plus funds in Asia part of the manager is not the only force driving Much like Baring Asia, other pan-regional players the verdict is still out.” fund sizes ever higher. The slicing and dicing have expanded their footprint since the last cycle. Another issue that must be factored into this of allocations towards the end of a popular Affinity closed its fourth fund at $3.8 billion earlier debate is co-investment. For example, it has been fundraise is usually done to accommodate LPs. this year, having raised $2.8 billion for its 2006 estimated that the $3.3 billion TPG Capital raised “You can always package a larger fund as the vintage predecessor. The firm decided against for its most recent pan-Asian fund could translate economic opportunity evolving,” says Vincent expanding its geographic remit to include Japan into $4.5 billion in firepower given LP appetite for Ng, a partner at placement agent Atlantic-Pacific and India, but increased headcount by 50% and additional direct exposure to deals. Capital. “And there are always two sides to the opened offices in Beijing and Jakarta, for a total One regional buyout fund manager tells AVCJ coin: a supposedly greedy GP milking as much of six. that ticket sizes at the top end of the market are as he can, and also an LP that is perhaps putting Ahead of closing its second Asian fund at growing even faster than fund sizes – perhaps money in thoughtlessly.”

Market intelligence on Asian private equity? AVCJ is the solution

The AVCJ Private Equity and Venture Capital Reports provide key information about the fast changing Asian private equity industry. Researched and compiled by AVCJ’s industry leading research team, the reports offer an in-depth view of private equity and venture capital activity in Asia Pacific, as well as in major countries and regions including Australasia, China, India, North Asia and Southeast Asia.

Each AVCJ Report includes the latest statistics and analysis, delivering insights on investments, capital raising, sector-specific activity. The reports also feature information on leading companies and business transactions.

For more information, please contact Sally Yip at +(852) 3411 4921 or email [email protected].

AVCJ, your Asian private equity information source.

Scan to find out more about the regional reports avcj.com Private Equity & Venture Forum Taiwan 2014 20 November • Westin Taipei

GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjtaiwan.com Keynotes: Shih-Chao Cho Tien-Mu Huang KAO Shien-quey Deputy Minister Vice Chairperson Deputy Minister MINISTRY OF ECONOMIC FINANCIAL SUPERVISORY NATIONAL DEVELOPMENT AFFAIRS COMMISSION (FSC) COUNCIL

Nicky Lu Kurt Tong Chairman & CEO Principal Deputy Assistant Secretary, Simultaneous translation is available ETRON TECHNOLOGY, INC. Bureau of Economic and Business Affairs U.S. DEPARTMENT OF STATE 活動全程提供中英文同傳。

Confirmed speakers include: Ming Bin Chang Cjin Cheng Andrew S. Hawkyard Deputy Director-General EIR (Entrepreneur in Chief Operating Officer INVESTMENT COMMISSION, Residence) MORGAN STANLEY MOEA 500 STARTUPS PRIVATE EQUITY ASIA

Richard Hsu CY Huang Calvin Lin Managing Director President CEO INTEL CAPITAL FCC PARTNERS MACROWELL OMG DIGITAL ENTERTAINMENT

Steven R. Okun Gordon Shaw Weichou Su Public Affairs Director, Managing Director, Shanghai Partner Asia Pacific BARING PRIVATE EQUITY STEPSTONE GROUP KKR ASIA

Eric Sun Alex Ying Senior Manager, Managing Director Alternative Investment THE CARLYLE GROUP NANSHAN LIFE

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

Registration enquiries: Pauline Chen T: +852 3411 4936 E: [email protected] Enquiry Sponsorship enquiries: Darryl Mag T: +852 3411 4919 E: [email protected] Speaking enquiries: Joy Qian T: +852 3411 4866 E: [email protected]

Asia Series Sponsor Co-Sponsors

Legal Sponsor Knowledge Partner

Join your peers avcjtaiwan.com #avcjtaiwan Private Equity & Venture Forum FOCUS Taiwan 2014 [email protected] 20 November • Westin Taipei Enforcement issues Investors see great potential in Asia’s private debt markets, but some GPs and LPs’ attitudes towards downside protection and enforceability keep them out of emerging markets

GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjtaiwan.com FUNDRAISING ACROSS ALL SEGMENTS We don’t want to rely just on how the sponsor the most advanced in the region. in private debt – which covers direct lending, would behave in a default situation. We want “In China, you’re not allowed to use local distressed debt and mezzanine financing – has certainty, and for this we want things stitched assets to secure International debt. It’s the same Keynotes: increased significantly since the global financial up in multiple ways. We don’t need to do this in in India,” he added. “But in Indonesia, you can Shih-Chao Cho Tien-Mu Huang KAO Shien-quey crisis. The number of funds raised globally more Australia and New Zealand.” write your loan agreement into international law, Deputy Minister Vice Chairperson Deputy Minister than doubled between 2009 and 2013. In 2013, Much like OCA Credit, ICG has a preference which could be in Singapore or the UK.” MINISTRY OF ECONOMIC FINANCIAL SUPERVISORY NATIONAL DEVELOPMENT there were 137 successful closes. Capital inflows for Asia’s developed markets, with Australia and Those with China credit exposure tend to AFFAIRS COMMISSION (FSC) COUNCIL have also soared from $23 billion in 2009 to over New Zealand accounting for about 40% of its construct deals through a network of offshore $77 billion in 2013, according to Preqin. exposure to the region. Chris Heine, managing entities to ensure they are in compliance with Nicky Lu Kurt Tong Although North America and Europe have director at ICG, noted that while mezzanine funds the law. Offshore GPs would also partner with Chairman & CEO Principal Deputy Assistant Secretary, Simultaneous translation is available been the primary targets, LPs and GPs recognize are relatively rare in developing Asian countries, licensed onshore lenders so that assets can be ETRON TECHNOLOGY, INC. Bureau of Economic and Business Affairs the role private debt can play as an alternative to his firm completes about 70 deals a year in Japan. collateralized. But the process can be challenging. U.S. DEPARTMENT OF STATE 活動全程提供中英文同傳。 pure equity strategies in Asia. Most importantly, ICG’s recently-formed mezzanine fund with In Indonesia, creditors and target companies it can help address the imbalance created Nomura is looking to exploit an expected rise in can set up a security arrangement. If the Confirmed speakers include: when the expansion in small and medium-sized demand from domestic corporates. borrower breaches of obligation under the enterprises was not accompanied by similar The company relies on debt instruments for Singapore law, for example, the lender could Ming Bin Chang Cjin Cheng Andrew S. Hawkyard growth in lending from traditional sources. downside protection. These usually come with assume ownership of the assets. “One, there Deputy Director-General EIR (Entrepreneur in Chief Operating Officer KKR has been providing local currency an annual coupon and an equity kicker, either is a value for the asset; two, it’s not as bad as INVESTMENT COMMISSION, Residence) MORGAN STANLEY structured financing in India for several years. warrants or co-investment. Heine sees more expected in Indonesia when you think about MOEA 500 STARTUPS PRIVATE EQUITY ASIA In August, it rolled out a similar strategy in upside in holding investments for longer periods security arrangement,” added Prasetya. Southeast Asia with the appointment of Jaka Richard Hsu CY Huang Calvin Lin Prasetya to lead regional credit and special Managing Director President CEO situations initiatives. Meanwhile, Intermediate Breakdown of private debt funds raised by primary geographic focus INTEL CAPITAL FCC PARTNERS MACROWELL OMG Capital Group (ICG) has entered the Japanese DIGITAL ENTERTAINMENT mezzanine space and Olympus Capital Asia has 100 Steven R. Okun Gordon Shaw Weichou Su launched a dedicated credit arm (OCA Credit). 80 Public Affairs Director, Managing Director, Shanghai Partner “The key components for LPs are downside protection and enforceability,” Josh Stern, senior Asia Pacific BARING PRIVATE EQUITY STEPSTONE GROUP 60 investment officer at the US-based Robert Wood KKR ASIA % Johnson Foundation, told the AVCJ Forum in 40 Hong Kong. “In the US, it’s one jurisdiction and Eric Sun Alex Ying 20 Senior Manager, Managing Director it’s a large market. But the difference in returns Alternative Investment THE CARLYLE GROUP expectations in Asia is the incentive that we want 0 NANSHAN LIFE INSURANCE to go for outside of our geography.” 2009 2010 2011 2012 2013 2014YTD The enforcement issue is complicated Asia & rest of world Europe North America

For the latest programme and speaker line-up, please visit avcjtaiwan.com by Asia’s varied legal systems. How can debt Source: Preqin specialists construct deals, across different Registration enquiries: Pauline Chen T: +852 3411 4936 E: [email protected] geographies and credit strategies, while Enquiry Sponsorship enquiries: Darryl Mag T: +852 3411 4919 E: [email protected] simultaneously creating solid downside and working alongside other stakeholders. As a KKR isn’t alone in seeking to tap Southeast Speaking enquiries: Joy Qian T: +852 3411 4866 E: [email protected] protection for investors? result, ICG has been investing in the Asia Pacific Asia’s private debt market. A few months ago, For OCA Credit, downside protection means region since 2002 but has yet to enforce security. Singapore-based United Overseas Bank (UOB) Asia Series Sponsor Co-Sponsors being able to secure collateral and enforce and Japan’s Orix Corp. launched a mezzanine creditor rights onshore. With the preservation Not just collateral fund to provide expansion capital to mid-sized of capital a priority, the firm looks more at While collateralizing assets is an important companies in the region. developed markets, such as New Zealand and consideration for ICG and OCA Credit, KKR’s The companies that UOB and KKR invest in Australia, while emerging markets like Southeast Prasetya sees it as just one part of the credit aren’t necessarily distressed; they just don’t see Asia remain a challenge. business – there are other ways to ensure equity as the best solution for their capital needs. “The question is what happens if you’ve got downside protection in Southeast Asia, and Prasetya therefore stressed the importance of Legal Sponsor Knowledge Partner a Singapore holding company with assets in an Indonesia in particular. While the country’s having the flexibility. Once the relationship with emerging market,” said Gary Stead, managing bankruptcy system is still unproven, Prasetya said, the entrepreneur is established, opportunities for director at OCA Credit. “We don’t want cash trap. the system of enforcing creditor rights is among traditional PE funding may emerge later on.

Join your peers #avcjtaiwan avcjtaiwan.com Number 43 | Volume 27 | November 18 2014 | avcj.com 11 Asian Venture Capital Journal avcj.com site licences

Wider reach to everyone in your organisation avcj.com site licence allows everyone in your organisation to have instant access to in-depth analysis, real-time news and information on private equity in Asia and beyond. Sign up for an avcj.com site licence now and empower your team with critical information and data to soar above your competitors in Asian private equity: Access up-to-date news on Asia’s private equity market Track the latest trends in fund raising, investments, exits and capital under management Learn of new mergers, acquisitions and business alliances Undertake investment and risk assessment Assess the e ects of global developments on a specic region or country Understand changes in the regulatory environment Get business intelligence on major deals Swiftly and accurately identify potential business opportunities

How does it work? We will arrange online access for your employees to avcj.com, either with individual passwords or by general access through IP address recognition.

How much does it cost? That depends on how much access you want, but we can customise cost-e ective packages to all rms, regard- less of size. For more information, contact Sally Yip at +(852) 3411 4921 or email [email protected] and we will be happy to discuss with you. Asian Venture Capital Journal DEAL OF THE WEEK [email protected] avcj.com site licences J-Star in hospice care double deal

NOT FOR THE FIRST TIME, J-STAR PLANTED industry and a mentor to Takahashi,” says Tatsuya welfare policy. By shifting more resources to the seeds of its latest investment while in pursuit Yumoto, a partner with J-Star. “She told Takahashi supporting home care services for those with of another deal. that she would consider selling her business to long term illnesses, the government hopes to The Japanese mid-market GP was one of him, but he needed the capital so he came to alleviate pressure on the country’s over-stretched a number of bidders for a home nursing care J-Star for support.” in-patient hospital services. “Hospitals are really provider but lost out to a domestic strategic As a result, J-Star has acquired the evil in the system because investor. However, J-Star built a rapport with both companies – with Takahashi they can be a high-cost and an Tadashi Takahashi, the company’s CEO, who liked retaining a single digit stake in ineffective solution for these what it was proposing. the business and acting CEO patients,” says Yumoto. “The It wasn’t long before Takashashi and his of both companies, which will government wants more of these team, unhappy under the new owner, left to set eventually be combined. The patients in more cost effective up a new business. Kairos offers home nursing financial details of the transaction private sector home care.” services in the Kanagawa region from two were not disclosed, but J-Star While policy can sometimes nursing care stations and also runs a hospice typically invests $5-10 million per Home care: Going private be unpredictable, Yumoto facility that looks after patients with later stage transaction. stresses the tide is moving in cancer and intractable diseases such as ALS. The The private equity firm is tapping into a well- favor of companies like Nurse Call and Kairos. The business model is based on that of Nurse Call, established demographic play in the country: an only significant risk is the labor shortage in Japan, which runs two nursing care stations in Nagoya. aging and declining population’s rising demand but J-Star is confident of securing the required This company was set up by Toyomi Yoshida in for healthcare services. “Last year 1.3 million talent. Wider reach to everyone in your organisation 2002, and she faced succession-planning issues. people died in Japan; next year it will increase to The private equity firm has reason for J-Star suggested Yoshida consolidate the two $1.7 million,” says Yumoto. “Of those people, 80% optimism in healthcare. This month it exited companies and invite Takahashi to serve as CEO die in hospital. The issue is most people would in-home care services provider HCM Corporation of an expanded Nurse Call. prefer die at home, but with the proper care.” via a trade sale to Alshok Group, generating an 8x avcj.com site licence allows everyone in your organisation to have instant access to in-depth analysis, “Yoshida is something of a legend in the J-Star is also banking on a change in social money multiple. real-time news and information on private equity in Asia and beyond. Sign up for an avcj.com site licence now and empower your team with critical information and data to soar above your competitors in Asian private equity: Sailing to the Maldives Access up-to-date news on Asia’s private equity market Track the latest trends in fund raising, investments, exits and capital under management CHINA HAS BECOME THE PRIMARY SOURCE facilities “which help our investment as well,” he funding for a few residential villas. Rather than Learn of new mergers, acquisitions and business alliances of tourists to the Maldives. In the first six months says. situated on the beach, these new properties will of 2014, more than 170,000 Chinese travelers Built by Eva and Sonu Shivdasani in 1995, be over water, as a better fit for Chinese tastes. Undertake investment and risk assessment flocked to the islands, up 20% year-on-year. Soneva is the oldest resort operator in the “We think the returns on the hospitality side Assess the e ects of global developments on a specic region or country They accounted for nearly one in three visitors, Maldives. The company owns a resort in Thailand and the residential side will be very attractive,” according to the Maldives Tourism Ministry. under the Soneva Kiri brand, but Sailing is Roling says. “We also intend to market the brand Understand changes in the regulatory environment Seeing this growth, Chinese PE firm Sailing primarily interested in Soneva Fushi. The group much more aggressively and put in more Asian Get business intelligence on major deals Capital set its sights on a luxury also developed the Six Senses features, not exclusively to Asian tourists but resort developer – Soneva Group, Resorts and Spas brand before probably more than Soneva has branded itself in Swiftly and accurately identify potential business opportunities which operates the Soneva Fushi exiting the assets in 2012. Asia in the past.” resort on the island of Kunfunadhoo. Soneva is profitable but Sailing’s holding period for investments The courtship coincided with requires a strategic partner is five years. In the later stages, the private How does it work? President Xi Jinping’s visit to to reach the next stage of equity firm will look to expand Soneva outside the Maldives in September, development. Sailing will of the Maldives, with a particular focus on We will arrange online access for your employees to avcj.com, either with individual passwords or by general which brought with it a string of support the company in China. It also plans to strengthen the resort infrastructure initiatives. Maldives: Tourist magnet expanding the existing resort operator’s sustainability profile by promoting access through IP address recognition. Last week, Sailing announced it and attract more Chinese environmentally friendly processes and raising would take a significant minority stake in Soneva tourists through leveraging its relationships with ecological awareness. Group. It is the largest Chinese investment in the large domestic tourism agencies. The investment comes out of Sailing’s cross- How much does it cost? Maldives to date, but Chris Roling, Hong Kong- Meanwhile, the bulk of the new capital will border fund, which reached a first close of RMB12 based managing director and partner at the PE go towards developing a new Soneva resort billion in 2012. Given the investor base comprises That depends on how much access you want, but we can customise cost-e ective packages to all rms, regard- firm, expects more capital to follow. Now the on a different island. The building process is strategic investors, there is a natural first port of country is on China’s political radar, there will be expected to take 14-18 months. As part of this call when the PE firm decides it is time to exit the less of size. For more information, contact Sally Yip at +(852) 3411 4921 or email billions of dollars for houses, bridges and airport development, Sailing will provide additional asset. [email protected] and we will be happy to discuss with you.

Number 43 | Volume 27 | November 18 2014 | avcj.com 13 PROFILE [email protected] Outback and beyond Joseph Skrzynski, one of the founding partners of CHAMP Private Equity, began his career before the asset class properly existed in Australia. He has played a pioneering role in its development

FEW PE PROFESSIONALS CAN CLAIM TO who was making the baby seats.” have started investing straight out of university; The deal was a buyout, an asset play and even fewer have been able to spend their early an entrepreneurial seed play. Not only did it careers doing venture, growth and buyouts. deliver a healthy return from the difference in the In the early 1970s Joseph Skrzynski , founding purchase price of the company and the value partner of CHAMP Private Equity, was granted of its assets, but the investment also embraced this freedom when he landed his first job innovation. It typified the kinds of opportunities managing private investments from a wealthy available in the early days. Australian industrialist’s balance sheet. “We did a bit of everything over those first “I had learnt an enormous amount from him years; it was terrific fun and there was very little as he was a very experienced business man,” says competition,” recalls Skrzynski. “That was also Skrzynski, who landed the job following a chance when I got to know my current partner Bill Ferris.” introduction. “I didn’t see myself as a corporate Skrzynski got to know Ferris – another person, but I did see myself as doing something alumnus of University of Sydney, but two years entrepreneurial. When I was told he needed his senior – after he returned back to Australia someone to look after the investment side of his following his MBA at Harvard. Ferris had also got business I thought it was perfect.” an early start in investing, managing a fund on Still a fresh-faced graduate from the University behalf of five wealthy families. The two gradually of Sydney, Skrzynski took part in his first buyout in 1973. It was the privatization of Ford Sherington, best known for the Globite suitcases “Back then, the big question was ‘Wow, A$30 popular among travellers and schoolchildren. million is a lot of money, are you going to be Skrzynski remembers this as a time when the concept of private equity did not really exist in able to invest it?’ We still get the same question Australia – or anywhere else for that matter. “Back then if you were an investment banker every time we raise a new vehicle” and you said to your client, who was trying to sell a division, ‘Why don’t you look at a management got to know each other through their deal a total commitment of A$50 million. It was not buyout?’ it would have been an insult – you activity in Australia’s nascent PE and VC industry. until it was time to raise a third fund that the would have been thrown out of the boardroom,” In 1987, the two set up a fund under the idea of private equity began to catch on. AMP he says. “Today you would be thrown out of the name Asian Mezzanine Partners (AMP). It was the decided to separate out its strategy into three boardroom if you didn’t have a buyout as one of first institutionally-funded private equity vehicle vehicles. The company’s seed stage activities your alternatives to a trade sale or float.” in Australia and their timing could not have been would continue as the AMWIN fund, a joint better. “The crash had come and the investors venture with Walden International in Asia and the Bits and pieces had taken a deep breath decided that with the US, and the and buyout strategies Sydney-based Ford Sherington was the ideal capital markets closed to young companies, would split into the two further vehicles. candidate for such a deal. The company had there was going to be a greater need for private For this purpose Skrzynski and Ferris decided a strong brand name and legacy, but it was equity,” says Skrzynski. “So they backed us.” to team up with New York-based mid-market GP also undervalued and struggling to compete AMP raised A$30 million (then around Castle Harlan. Castle Harlan Australia Mezzanine in an increasingly global market. It tried to $21 million) for its first fund from four local Partners was a bit of a mouthful, so they settled fight the tide by introducing new businesses superannuation funds. Again Skrzynski found on the name CHAMP. CHAMP Ventures became lines and targeting a younger demographic. himself targeting opportunities across seed the growth stage investment arm, while the new Ford Sherington even had someone working capital, growth stage investment and buyouts. CHAMP Private Equity handled buyouts. exclusively on new product ideas, most notably “Back then, the big question was ‘Wow, A$30 developing car seats for babies. million is a lot of money, are you going to be able Going overseas “In those days balance sheets were cost- to invest it?’ We still get the same question every The international tie-up suited AMP, which based rather than market value-based so it was time we raise a new vehicle – our most recent had already been looking beyond its borders. totally undervalued,” says Skrzynski. “We decided fund was A$1.5 billion.” The firm’s investments were in Australia, but it to sell up the property and discontinue the The strategy remained the same for AMP II – targeted companies with regional or even global luggage business – which was falling over from offering all three aspects of private equity – and strategies – as CHAMP still does today. Datacraft, imports – and then got behind the entrepreneur by then the LP based had grown to eight, with which listed in Singapore in 1997 – was a classic

14 avcj.com | November 18 2014 | Volume 27 | Number 43 PROFILE [email protected]

example. It was an Australia-based company that After securing their first oversea institutional out of escrow we sold,” says Skrzynski. “We exited had started offshore operations in Hong Kong investor, not only was CHAMP – which raised over the complaints of some of our younger and Singapore, but 80% of the business was in A$500 million for Fund I – able to chalk up team members, who were caught up in the Australia and only 20% was in Asia. another first for Australian private equity, but it whole dotcom thing. But we got out, and three “By the time we finished with the investment, also helped legitimize the jurisdiction in eyes of months later the market collapsed.” 80% of the business was in Asia and 20% of the the LP community. Before long, other Australian Nearly 15 years on, CHAMP has raised three business was in Australia,” says Skrzynski. “It had funds had begun to follow suit. Skrzynski recalls funds – not including the two vehicles raised grown so quickly in the Asian market that it the turn of the millennium as a positive time for as AMP – with committed capital of nearly really gave us a feel for doing the ‘Australia plus’ his firm in general. It was also the era of the dot- A$3 billion. Meanwhile, growth capital affiliate investment strategy.” com boom and, like everyone else, CHAMP was CHAMP Ventures is now investing out of its At the same time, CHAMP was targeting a caught up in the excitement. seventh fund, which has a corpus of A$450 new crop of overseas investors for CHAMP Private “It was just at the end of the boom and a very million. After over 40 years in the business, and Equity I. Skrzynski recalls that for most of the impressive guy came to us and outlined what nearly 30 years running CHAMP, Skrzynski – with 1990s, the largest groups of investors were either was essentially a search engine business plan,” his colleague Ferris – is considering succession. based in North America or Europe, and they says Skrzynski. “He was articulate, and his ideas With the formation of CHAMP III Fund – the tended to prioritize domestic investments. Few were well thought through. The only problem A$1.5 billion vehicle – in 2009, the two founders were investing in Asia, but that would change. was when he said: ‘... And I need the money by began transferring equity to the senior managers By 2000, the CHAMP team had already spent next Thursday.’ That broke one of our rules, but from the next generation. Earlier this year, John around four years meeting overseas investors, somehow he convinced us to back him.” Haddock was appointed CEO. He will lead the and they were beginning to build a network. The investment was LookSmart, a deal company in the next fund cycle. After 13 years in the business they also had that Skrzynski describes as a 100-to-one deal – they Skrzynski and Ferris intend to remain on the all-important track record. invested A$1 million and got back A$100 investment committee, but will eventually step “The first overseas investor we secured was million. When LookSmart listed on NASDAQ in back into a mentoring role as they transition out HarbourVest Partners,” says Skrzynski. “They had 2000 at a $1 billion valuation, it was the highest of the day-to-day running the firm’s portfolio established a Hong Kong office and were active capitalization for a non-US company debuting on companies. “To see the landscape change so in the region. The fact we had a US partner, and the bourse that year. much – and to see how the infrastructure has there was someone they could call in New York “We didn’t know the dotcom crash was built up around Australian private equity industry as well as in Sydney, had also helped give our coming, but we knew 100-to-one was good, so – I am as proud to have helped build that, as I am investors’ confidence.” we weren’t greedy; the moment our shares came to have co-founded CHAMP,” says Skrzynski.

The most authoritative and comprehensive guide to private equity investors in Asia Asian Private Equity Online Directory

The Asian Private Equity Online Directory is the most comprehensive online directory on private equity and venture capital in Asia. It is easy to navigate, enabling access to a listing of around 3,900 Asian private equity firms and over 9,600 professionals. For a free trial, please visit asianfn.com/VCDemo.

To subscribe, call Sally Yip at +(852) 3411 4921 or email [email protected] avcj.com January 21, 2015 (Wednesday), S221, Hong Kong Convention and Exhibition Centre

The Hong Kong Venture Capital & Private Equity Association (HKVCA) is pleased to announce that the Asia Private Equity Forum 2015 will be held on Wednesday, January 21, 2015. APEF 2015 will once again follow immediately the Hong Kong Government’s Asian Financial Forum and will be held in the magnificentHong Kong Convention and Exhibition Centre. Opening Remarks Opening Keynote Luncheon Keynote Closing Keynote Tsang Chun-wah, Gabriel Li, H. Chin Chou, Christoph Rubeli, John, GBM, JP Managing Partner & Investment Managing Director, Partner & Co-Chief Executive Financial Secretary, Committee Member, Morgan Stanley Asia Officer, HKSAR Orchid Asia Group Management Partners Group AG

Josh Porter, Joseph Wan, Eric Chan, Broderick Storie, Managing Director, Operating Partner, Managing Director, Managing Director & Partner, Advantage Partners Cinven HK Private Equity Group, PAG Real Estate JP Morgan Asset Management David Seex, Brahmal Vasudevan, Jie Gong, Managing Director & Head of Asia Pacific, Founder & Chief Executive Officer, Gregory Hara, Partner, Adveq Management (Hong Kong) Creador Director & CEO, Pantheon Ventures (HK) J-STAR Wendy Zhu, Charles Huh Christian Paul, Managing Director, Senior Managing Director, Jesse Sheley, Principal, AlpInvest Partners CVC Capital Partners Partner, Corporate, Permira Advisors Kirkland & Ellis Steve Martinez, Patrick Yip, Jonathan English, Head of Asia Pacific & Senior Partner, National M&A Leader, Bryan Southergill, Managing Director, Private Equity, Deloitte China Director & Asia Head of Real Estate, Portfolio Advisors (Hong Kong) Apollo Management KKR Asia Dominic Scriven OBE, Velisarios Kattoulas, Liang Meng, CEO, Gaurav Dalmia, CEO, Managing Partner, Dragon Capital Group Chairman, The Poseidon Group Ascendent Capital Partners Landmark Holdings Alexander I. McCloskey, Mark O’Hare, Akihiko Yasuda, Partner & Head of South Asia, Craig Wilkinson, Founder & Chief Executive, Managing Director, Emerald Hill Capital Partners Regional Managing Director, Preqin Asia Alternatives Management LDC (Asia) Martin Mok, Hans Jung, Ernest Boles, Partner, Mark Chiba, Executive Vice President, Chief Executive Officer, EQT Partners Asia Group Chairman & Partner, STIC Investment Auda International The Longreach Group Gary Lawrence, Peter Ryan-Kane, Larry Chan, Managing Partner & Founder, Derek Sulger, Head of Portfolio Advisory, Executive Vice President, Excelsior Capital Asia Partner Asia Pacific, Bain Capital Asia Lunar Capital Towers Watson Sameer Sain, Michael Thorneman, Co-founder & Managing Partner, Robert Mast, Steve Sun, Managing Partner, Everstone Capital Partner, Partner & Managing Director, Bain & Company Monument Group TPG Capital Gopal Jain, Mark Fogle, Co-founder & Managing Partner, Nicholas Bloy, Javad Movsoumov, Managing Director & Head of Real Estate, Gaja Capital Co-managing Partner, Executive Director Baring Private Equity Asia Navis Capital Partners UBS Private Funds Group George Anson, Rahul Bhasin, Managing Director, Brock Williams, John Lewis, Managing Partner, HarbourVest Partners (U.K.) Senior Vice President Chief Executive Officer, Baring Private Equity Partners Neuberger Berman Unitas Capital Marcus Thompson, Edward Huang, CEO, Patrick Walujo, Jason Shin, Senior Managing Director, Private Equity, Headland Capital Partners Co-founder & Managing Partner, Co-founder & Managing Partner, Blackstone Northstar Equity Partners Vogo Fund Dr. Ashish Gupta, Tamotsu Adachi, Senior Managing Director, Raju Ruparelia, Alexa Zhang, Managing Director & Helion Ventures Partners Senior Principal, Managing Director Co-representative in Japan, Teachers' Private Capital, Wilshire Associates The Carlyle Group Conrad Tsang, Ontario Teachers' Pension Plan (Asia) Chairman, Stuart Schonberger, HKVCA Organiser: Co-organiser: Media Partner: Managing Director, Head of Investor Relations, David Pierce, CDH Investments Managing Director & Head of Asia, HQ Capital Peter Fuhrman, Chairman & CEO, Alex Mong, China First Capital Senior Investment Director, Free LP Passes for Pension Funds, , Endowments, Foundations, InfraRed NF Investment Advisers Family Offices, DFIs and Sovereign Wealth Funds. Eric Mason, Register: [email protected] Managing Director – Asia Investments, Hidemi Moue, The Church CEO, Quote "APEF_AVCJ" code to enjoy 20% discount off (non-member rate) Japan Industrial Partners of a ticket for all AVCJ subscribers Information in this leaflet is correct at the time of printing. HKVCA represents the rights to amend any details due to unforeseen circumstances To register, please visit apef.hkvca.com.hk Tel: +852 2167 7518 Email: [email protected]