Asia’s News Source avcj.com June 30 2015 Volume 28 Number 24

EDITOR’S VIEWPOINT Chinese entrepreneurs and US compliance costs Page 3

NEWS Allegro, Carlyle, CHAMP PE, Crescent, CX Partners, Formation 8, IDG, KKR, Legend, Matrix, NSSK, Paine & Partners, Partners Group, SCPE Page 4

FOCUS Hedge funds pursue alpha in late-stage India technology rounds Page 12

INDUSTRY Q&A Clearwater Capital Home of the brave Partners’ Robert Petty discusses Asia credit Are US pension funds losing their appetite for Asian private equity? Page 7 Page 15

FOCUS FOCUS

Meet the neighbors Building consensus Corporate China sets up in Silicon Valley Page 10 PE seeks access to US public infrastructure Page 13

PRE-CONFERENCE ISSUE AVCJ PRIVATE EQUITY AND FORUM USA 2015 Anything is possible if you work with the right partner

Unlocking liquidity for private equity investors www.collercapital.com London, New York, Hong Kong EDITOR’S VIEWPOINT [email protected]

Managing Editor Tim Burroughs (852) 3411 4909 Staff Writers Andrew Woodman (852) 3411 4852 Winnie Liu (852) 3411 4907 Compliance costs Holden Mann (852) 3411 4964 Creative Director Dicky Tang Designers Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow

CHINESE MOBILE GAME PUBLISHER $2.5 million, followed by an ongoing annual Senior Research Manager iDreamSky Technology went public on NASDAQ compliance cost of $1.5 million. These expenses Helen Lee in August 2014 after raising $116 million in its are described as generally higher than those in Research Associates Herbert Yum, Jason Chong, IPO. This windfall came with a price tag: the other markets. Kaho Mak company paid $4.65 million in costs, most of it in A 2014 Heritage Foundation study looked Senior Marketing Manager accounting and legal expenses. A further $2.54 at the impact of the annual compliance cost in Sally Yip million was paid to PwC in 2014 for auditing its greater depth. Say a company with $10 million Circulation Administrator books and a further $30,622 for tax planning and in shareholders’ equity and a 20% return on Prudence Lau compliance services. equity earns $2 million. Subtract $1.5 million and Subscription Sales Executive IDreamSky claims to be the largest third- earnings and return on equity fall to $500,000 Jade Chan party mobile game publisher in China. Revenue and 5%, respectively. Without scale it hardly Manager, Delegate Sales ballooned to RMB984.1 million ($158.5 million) seems worthwhile. Pauline Chen last year as the company strove to maximize scale Other studies have questioned whether the Director, Business Development ahead of its listing. These customer acquisition one-off 2.5 million and ongoing $1.5 million Darryl Mag efforts weighed heavily on the bottom line: as figures are even accurate. Being publicly-listed Manager, Business Development a result of marketing and administrative costs, means higher wage bills because CEOs, CFOs Anil Nathani, Samuel Lau iDreamSky slipped from a RMB27.8 million net and other financial professionals cost more and Sales Coordinator profit to a RMB16.7 million net loss. new members added to the board of directors Debbie Koo The IPO represented a liquidity event for must be compensated. Compliance may also Conference Managers the company’s VC backers, Legend Capital and involve investment in better IT systems and the Jonathon Cohen, Sarah Doyle, Redpoint Ventures, although they had yet to recruitment of investor relations executives. Conference Administrator start unwinding their positions. For Michael The SEC might relax its requirements in time, Amelie Poon Chen, the company’s chairman, CEO and single but it is difficult to say where the line should be. Conference Coordinator Fiona Keung, Jovial Chung largest shareholder, in retrospect it might seem Under a disclosure-based system, investors rely something of a damp squib. on companies providing sufficient information Publishing Director IDreamSky sold it shares at $15.00 apiece and for them to make decisions. But excessive Allen Lee they closed at $15.94 on the first day of trading. disclosure imposes heavy costs on smaller A peak of $23.66 came last September but since companies and there comes a point when then iDreamSky has trended downwards. It investors are wallowing in so much information Incisive Media closed at $10.53 on June 9 before a small surge that it results in confusion rather than insight. Unit 1401 Devon House, Taikoo Place ahead of Chen submitting a take-private offer of A US listing is not for every Chinese company, 979 King’s Road, Quarry Bay, Hong Kong $14.00 per share. and it could be argued that compliance is the T. (852) 3411-4900 Clearly Chen, like many of his fellow founder- cost of entry: an exchange can’t call itself gold F. (852) 3411-4999 E. [email protected] entrepreneurs of US-listed Chinese companies, standard if the protections offered are not top URL. avcj.com feels he can getter a better valuation by listing rate. Beijing Representative Office the business back home. IDreamSky is essentially And as China alters the rules of its own No.1-2-(2)-B-A554, 1st Building, No.66 Nanshatan, consumer-facing so it may get more traction with bourses, transitioning from an approval-based Chaoyang District, Beijing, retail investors that know the company first-hand. to a registration-based system, similar issues will People’s Republic of China T. (86) 10 5869 6203 And then, at least when the take-private bid was emerge. It is one thing for a company to say it F. (86) 10 5869 6205 submitted, China’s public markets were soaring. would prefer to be listed domestically because E. [email protected] Valuation arbitrage aside, the increasingly the valuation will better reflect the qualities of onerous reporting and transparency its business. Moving for the sake of a cheaper The Publisher reserves all rights herein. Reproduction in whole or requirements for US-listed companies are a and easier compliance protocols raises questions in part is permitted only with the written consent of AVCJ Group Limited. source of frustration for many smaller Chinese about the quality of those protocols. ISSN 1817-1648 Copyright © 2015 companies. Even though they may recognize the need to cover themselves they may question whether the time and money is worth it. The US Securities and Exchange Commission Tim Burroughs estimates that the average cost of achieving Managing Editor initial regulatory compliance for an IPO is Asian Venture Capital Journal

Number 24 | Volume 28 | June 30 2015 | avcj.com 3 NEWS

MBO no longer a ‘dirty logistics and courier services provider. Shanghai- ASIA PACIFIC headquartered ANE claims to be the largest less- word’ in Japan than-truckload (LTL) operator in China working Formation 8 to raise Asia The term management (MBO) is no under a franchise model. It provides road longer considered a “dirty word” among Japanese transportation and delivery services for cargos VC fund company founders, according to local GPs who between 15 kilograms and three tons. US venture capital firm Formation 8 is looking to are eyeing more succession deals. raise a $400 million Asia fund to connect start- Speaking at the AVCJ Japan Forum in Tokyo, Legend-owned payment ups in the region with Silicon Valley. The fund Jun Tsusaka, managing partner and co-founder of – called F8 Asia Growth – is expected to back 5-7 Nippon Sangyo Suishin Kiko (NSSK), said that the platform raises $242m late-stage tech companies. idea of turning to private equity as a succession Lakala, a Chinese offline third-party payment solution is not only increasingly acceptable, service provider owned by Legend Holdings, but founders often feel an obligation to bring has raised RMB1.45 billion ($242 million) in its AUSTRALASIA in professional management to protect their latest funding round, at a valuation of more than RMB10 billion. Investors include Taiping Life Investors commit $347m to , China Reinsurance, China Continent Property & Casualty Insurance and the Civil Australian wind farm Aviation Development Fund. Partners Group has led a A$450 million ($347 million) investment in Australia’s Ararat Wind Chinese tutor app Farm project, alongside General Electric (GE), Renewable Energy Systems (RES), and Canadian Changingedu raises $100m OPTrust. The wind farm is expected TAL Education Group, a US-listed K-12 after- to have a capacity of 240 megawatts. school tutoring service provider, has led a $100 million Series C round for Changingedu.com, Allegro closes Australia a China-based platform that connects private teachers with students. IDG Capital Partners, distress fund at $139m legacy. “If you look back 10 years, MBO was a dirty Trustbridge Partners and Sequoia Capital also Australian turnaround specialist Allegro Funds word, owners hated the idea,” said Tsusaka. “Now participated. has closed its second vehicle at A$180 million owners are happy to speak about it and there is ($139 million). The GP ended up with sufficient no negative sentiment, they understand GPs can Focus Media’s backdoor demand to exceed the original target of A$200 help grow their company.” million but decided against seeking to increase His comments reinforced sentiments listing encounters hurdles the hard cap agreed at the first close. expressed by Hideo Nagatsuyu, a senior Private equity-backed Focus Media’s planned partner with Advantage Partners. Nagatsuys $7 billion reverse merger with Shenzhen-listed CHAMP PE to invest in also noted that the change in attitude towards Hongda New Material has encountered another outside investors was not driven by regulatory setback following the resignation of Hongda’s mining supplier Bradken pressure; rather by companies’ desire to be more chairman in response to a probe by authorities. CHAMP Private Equity and Chile’s Sigdo Koppers competitive at home and overseas. Dehong Zhu, who is also the controlling have agreed to invest A$70 million ($54 million) Tsusaka added that a lot of the potential shareholder of the shell company, has vacated his in struggling Australian mining industry supplier deal flow came from succession deals involving positions in the firm due to personal reasons, the Bradken. A merger of Bradken and Sigdo-owned small and medium-sized enterprises (SMEs) with rubber manufacturer said. Magotteaux Group is also under consideration. ageing founders. “SMEs account for around 90% of the Japan’s GDP,” he added. “So what you have KKR commits $70m to Crescent to buy is a very large pool filled with a lot of small fish.” education player Tarena Healthscope business KKR has invested $70 million in Tarena Crescent Capital Partners has agreed to Financial plan to invest nearly $1 billion in a joint International, a provider of professional acquire the Australian pathology operations of venture that will tap into China’s local online-to- education and training in China, as IDG Capital Healthscope for A$105 million ($80.8 million), offline (O2O) services market, initially focusing on Partners and Goldman Sachs trimmed their comprising A$92.5 million in cash and a the food and beverage segment. The JV, called stakes in the company. KKR has acquired 6.8 promissory note worth A$12.5 million. Koubei, will receive contributions of RMB3 billion million shares while Tarena founder and CEO ($483 million) from each of the companies and Shaoyun Han picked up a further two million for GREATER CHINA they will hold 50% apiece of the business. $20.5 million. Carlyle to invest $120m in VCs commit $20m to Alibaba, Ant Financial form Shanghai ANE Logistics logistics solutions provider JV to invest in O2O service The Carlyle Group has agreed to invest $120 IDG Capital Partners, Matrix Partners and Alibaba Group and its financial affiliate Ant million in Shanghai ANE Logistics, a Chinese Yunqi Ventures have provided $20 million in

4 avcj.com | June 30 2015 | Volume 28 | Number 24 This announcement appears as a matter of record only. April 2015

Innovative Directions in Alternative Investing

$10,100,000,000

Lexington Capital Partners VIII, L.P.

THIS PARTNERSHIP HAS BEEN ESTABLISHED TO ACQUIRE A DIVERSIFIED PORTFOLIO OF PRIVATE EQUITY AND ALTERNATIVE INTERESTS IN THE GLOBAL SECONDARY MARKET.

New York 660 Madison Avenue, New York, NY 10065 212 754 0411 Boston 111 Huntington Avenue, Suite 3020, Boston, MA 02199 617 247 7010 Menlo Park 3000 Sand Hill Road, 1-220, Menlo Park, CA 94025 650 561 9600 London 50 Berkeley Street, London W1J 8HA 44 20 7399 3940 Hong Kong 15/F York House, The Landmark, 15 Queen's Road Central, Central, Hong Kong 852 3987 1600

[email protected] www.lexingtonpartners.com NEWS

Series A funding to Olymtech Corporation, a Carlyle commits $500m to Nokia Growth leads Series Chinese cloud solutions specialist that focuses on the logistics industry. Founded in 2002, South Asia energy platform B for India’s Indix Olymtech provides cloud-based IT solutions for The Carlyle Group has committed $500 million Nokia Growth Partners has led a $15 million international freight forwarders and logistics to an upstream oil and gas start-up that will Series B round for Indian cloud-based analytics services providers. primarily focus on development and production start-up Indix. Existing investors Nexus Venture opportunities in the Indian subcontinent. The Partners and Avalon Ventures took part in the Wenzhou Kangning company, Magna Energy, was set up in 2013 as round as well. Hospital files for HK IPO a passive investment vehicle by Mike Watts and Jann Brown, who until last year served as deputy IDG Ventures India founder Wenzhou Kangning Hospital, a China-based CEO and managing director of listed oil and psychiatric specialty care service provider, has Manik Arora to leave firm filed for an IPO in Hong Kong. Guangzhou GL Manik Arora, founder and managing director of Capital and CDH Investments hold stakes of IDG Ventures India, will leave the firm. Prior to 29.14% and 12.35%, respectively, in the firm. setting up IDG Ventures India in 2007, he led the India practice at Battery Ventures. NORTH ASIA SOUTHEAST ASIA Japan pension funds have out-dated view on PE risk Warburg Pincus consortium Japan’s pension fund industry needs to re-ups in Vincom Retail reevaluate its perception of private equity as a A consortium led by Warburg Pincus has made risky alternative asset, domestic LPs told the AVCJ gas exploration and production (E&P) specialist a follow-on investment of about $100 million in Japan Forum. Hidekazu Ishida, an advisor with Cairn Energy. They have a combined 60 years’ Vietnam shopping mall operator Vincom Retail. Osaka Gas Pension Fund, said that, while many experience working in the oil industry, including The new investment raises the consortium’s total pension funds shied away from private equity, 30 years in South Asia. commitment to Vincom to $300 million. investing in other assets such as listed equities is The objective is to create a full-cycle oil and potentially riskier because the investor has far less gas company through acquisitions and local Maxpower gets debt, equity control over the asset. He added that, issues over licensing rounds, combining the founders’ fees aside, PE should be seen as fundamentally expertise with Carlyle’s capital and industry package from SCPE the same as investing in public equities. knowledge. The equity commitment comes from Standard Chartered Private Equity (SCPE) has Carlyle International Energy Partners (CIEP), which re-upped in Indonesia-based distributed power focuses on E&P, production, midstream, and specialist Maxpower Group, providing $60 million SOUTH ASIA refining and marketing in Europe, Africa, Latin in equity and serving as joint lead arranger on a America and Asia. $222 million debt refinancing for the company. PE-backed Coffee Day targets $180m India IPO PE investors set for exit as Soetantyo family buys Icicle Holdings from PE Cafe Coffee Day, an Indian coffee shop and RBL Bank files for IPO restaurant chain backed by KKR, New Silk Route A company owned by Indonesia’s Soetantyo Partners and Standard Chartered Private Equity, Indian private lender RBL Bank plans to raise family has agreed to buy North America- is seeking to raise up to INR11.5 billion ($180 up to INR11 billion ($173 million) through an based Icicle Holdings from Paine & Partners. million) through an India IPO. Over half of the IPO, providing a full exit for Beacon India Private Convergence Holdings will buy Icicle’s land- proceeds of the offering will be used to repay Equity and a partial exit for Gaja Capital and based wild seafood processing and farmed debt, with the remainder going towards building Capvent. The company will offer an undisclosed salmon activities, while Dominion Catchers will new facilities and refurbishing existing ones. amount of new shares, along with up to 17.6 take ownership of the harvesting and processing million existing shares, including 9.5 million from vessels as well as the associated fishing rights. India to create trading Beacon and 3.5 million from Gaja. platform for tech start-ups SCPE commits $52m to L CX set for part exit as The Securities and Exchange Board of India Capital-owned Crystal Jade (SEBI) has provided details on plans for a trading Matrix Cellular files for IPO Standard Chartered Private Equity (SCPE) has platform for technology start-ups as it seeks Matrix Cellular, an Indian telecommunications committed $52 million to Crystal Jade Group to make it easier for companies to go public company that caters to people traveling abroad, Holdings, a food and beverage conglomerate domestically. The Institutional Trading Platform has filed for an IPO. This would allow a partial owned by L Capital Asia. The company will use (ITP) will have lower disclosure requirements and exit for private equity backer CX Partners. The the funding to add more locations to its existing shorter post-offering lock-up periods of than company plans to sell 15.17 million shares, of network of restaurants and stores. It will also those set out for India’s major bourses. which 12.36 million are held by CX. expand to more international regions.

6 avcj.com | June 30 2015 | Volume 28 | Number 24 COVER STORY [email protected] Survival of the fittest With US LPs refocusing their Asia exposure – reducing the number of commitments if not the aggregate size – smaller funds may be feeling the pinch. But this could benefit the long-term health of the market

THE CALIFORNIA PUBLIC EMPLOYEES’ significantly behind their US counterparts. The out of a well-supported global fund. Retirement System (CalPERS) is every bit latter have more experience and know more Smaller vehicles, with a country- or sector- the heavyweight GP. It is the second-largest techniques for adding value to their portfolio specific focus, have a harder time attracting public pension fund in the US and the biggest companies – all in the context of conforming to interest in this environment. contributor to PE. Of its $304.5 billion in assets, the traditional buyout model. This gives LPs more There are several reasons for this trend. $28.8 billion is devoted to the asset class. confidence in these managers’ ability to deliver Reputation plays a part; large, regional GPs tend While CalPERS has no plans to dramatically strong returns. to have a longer history than recently established reduce this allocation, it will be shared among “Where the US GPs are approaching 40 years specialist funds. Investors who have already seen a smaller number of managers – commitments old, in Asia they’re just coming out of the first Asian markets hit several speed bumps may to individual GPs will fall from 98 to 30 over the cycle,” says Mounir Guen, CEO of MVision. “That’s also see bigger funds as a safer bet, capable of next five years. For CalPERS alone to engage in more the frontier type of exposure than it is the generating reliable returns with less risk attached, a major refocusing would be troubling enough. settlers, or a modern kind of environment. The US in part because they are not tied to the fortunes But the pension fund serves as a bellwether is in that urban, modern look. It’s all slick, it’s really of single market. for LP attitudes, and its move has highlighted a clever, the guys really know what they’re doing.” Furthermore, consolidating investments problem that has been apparent some time now. EMPEA’s 2015 survey of global LPs supports into a few large funds helps LPs economize “A lot of people have distributed more of their these claims of skepticism. While the number of their GP relationships. Each fund, no matter the attention and resources on a domestic basis,” LPs expecting returns of 16% or more from their size, requires the same due diligence work. All says Heidi Poon, senior vice president at advisory developed markets portfolios has risen slightly else being equal, there is a clear advantage for firm TorreyCove Capital Partners. “It doesn’t mean since 2012, expectations for similar returns from investors to maximize the return that can be that people completely ignore it, but there are emerging markets, including Asia, have dropped generated by the time spent. definitely more questions along the lines of, ‘Why do I need to fly over to China to look at this fund, when they haven’t delivered the same returns?’” “I think the trend is definitely for emerging As more investors join the so-called “CalPERS cull,” the ensuing ripples are expected to hit markets, and specifically the biggest markets, emerging markets especially hard, with investors such as China, to take more of a place in private retreating from small, emerging funds and entrusting their money to larger players or even equity portfolios” – Javad Movsoumov taking it home to domestic GPs. Unless they can find replacement capital, many less established firms may be swept away. from 72% in 2012 to just over half this year. “For a pension fund in the US, with relatively However, like all evolutionary thresholds, this Moreover, the number of LPs planning to little staff and a quite sizable portfolio, it’s trimming of GP relationships is not a universal increase their allocations to emerging markets easier to evaluate a dozen or so funds in the $1 negative. While some pain will come in the short dropped from 64% in 2011 to 45% in 2015; billion-plus space than to try to evaluate closer term, the overall effect should be to strengthen the number planning to decrease allocations to 100 funds that operate in the $500 million the market and reinforce the best tendencies increased from 2% to 22%. While the survey did to $1 billion fund space in Asia,” says Javad among those who are able to weather the storm. not track US LPs specifically, it is nonetheless Movsoumov, executive director of the Asia-Pacific useful for examining overall attitudes. private funds group at UBS. Out of the comfort zone Not all funds are suffering from LPs’ refocus on AVCJ Research bears out these reports Doing business in Asia can be frustrating for a the US. In 2014, Asia private equity exits reached of consolidation. While the number of US investor. It involves difficulties that are not a record $65.3 billion, buoyed the $5.8 billion country-specific and regional funds receiving present at home, including differences in time sale of Oriental Brewery and Alibaba Group’s $25 commitments has fallen from 2011 to 2014, the zones, language and culture. These additional billion IPO – respectively the largest trade sale average size of each fund, of both types, actually challenges are factored into the risk-reward ratio, and the largest public offering ever seen in the increased from 2012 to 2014. leading LPs to expect returns that funds don’t region. always deliver. The beneficiaries of Oriental Brewery, KKR Tougher on terms An additional challenge to expectations is and Affinity Equity Partners, are among those Another disadvantage for smaller funds has to do the relative novelty of private equity in Asia. generalist, pan-regional GPs that continue to with some common restrictions imposed by LPs. While GPs in the region have made great strides receive ample funding from investors. Silver Lake, Often an investor will be unable to account for in building their business savvy, they are still one of the biggest winners on Alibaba, invests more than 10% of the total fund size. However,

Number 24 | Volume 28 | June 30 2015 | avcj.com 7 COVER STORY [email protected]

larger investors also are reluctant to commit small say that Multiples’ willingness to grant the “It has become less complicated to evaluate amounts, given the burden of due diligence requests of the LP in return for a re-up may have funds in Asia over the last few years and that and because the sheer size of their asset pools backfired. is what prompted us to expand our regional requires a substantial annual commitment to the “The deal that they have with CPPIB means portfolio,” Andy Hayes, private equity investor asset class. that other larger investors want the same officer at Oregon State Treasury, told AVCJ “It’s tough for these guys to write checks deal, which CPPIB doesn’t want to give other last year. “The winners have begun to prove much under $50 million. It’s just not worth investors, and therefore now people aren’t really themselves, more GPs have started to return their effort and the diligence and everything looking at it,” says one executive familiar with the capital and we are seeing who can do this job in they have to go through in order to get there,” fundraising market. Asia.” says Justin Dolling, a partner at Kirkland & Ellis. Not everyone sees the well drying up It should be noted this does not apply to all “It’s difficult for a large to for smaller funds in Asia. While some LPs are LPs, many of which remain comfortable working justify going through all the necessary work and becoming more reluctant to commit to funds through intermediaries that are familiar with relationship building until a fund hits at least directly, there are alternative paths. Advisors and the target markets. Neither does this trend $500 million, because then they can write a $50 funds-of-funds, for instance, have long been seen necessarily mean less money is available for million check and still be below 10% of the fund.” as a way for foreign LPs to gain Asia exposure smaller players. “If the funds-of-funds are no longer doing the larger funds, they have to differentiate themselves, so they will have more Number of funds vs. fund size in Asia time and attention to devote to the smaller 800 200 funds,” says TorreyCove’s Poon.

600 150 Alternative sources In addition to exploring fund-of-fund relationships, there are other LPs beyond the 400 100

Funds bigger-pocket public pension funds. One fund

US$ million manager in Hong Kong sees family offices 200 50 and endowments as willing to take bigger risks; a pension fund might not participate in a 0 0 manager’s fundraise until the third or fourth fund, 2010 2011 2012 2013 2014 but an endowment or a might come Number of funds Country-speci c Average fund size Country-speci c (US$m) in as early as Fund II. Number of funds Regional Average fund size Regional (US$m) While risk-averse LPs such as pension funds Source: AVCJ Research may see Asia as too risky for their money, there are still plenty of opportunities around the region for those willing to take bigger leaps. LP expectations are not limited to fund size. without taking on too much risk, since investors “Even though the Southeast Asian countries Over the last several years there has been a can commit to a single manager that then are smaller, and the funds are smaller as well, marked trend for investors to add increasingly spreads its money around. those funds are still very suitable for some strict conditions to a fund commitment. While this approach results in a double layer adventurous LPs, like endowments,” says These demands, in the form of side letters, can of fees, the peace of mind may be seen as worth Campbell Lutyens’ Yan. “Vietnam would be a encompass a range of issues, from governance or the increased costs. Committing to a fund-of- good example. Because Vietnam still has a lot of transparency issues to special fee arrangements. funds also involves giving up some control, growth, it’s a country that can be seen as a China- Extra conditions have grown rapidly; while which means the money of a skeptical investor plus-one strategy, and there are some state- GPs were describing side letters as an unfair can still end up with a smaller GP in the end. owned enterprise privatization plays that can still imposition as recently as three years ago, today “If you look at some recent fundraises in be seen as low-hanging fruits.” industry veterans say they have become an China, they still get quite an amazing amount Asian managers may also be too devoted accepted part of doing business in the Asia from the fund-of-funds community,” says Conrad to certain types of investors from a prestige market. Yan, a partner at placement agent Campbell standpoint, passing over LPs who are more One important note, however, is that LPs are Lutyens. “There is obviously a time lag, because appropriate for them or more likely to commit. less likely to require additional guarantees from while a lot of investors have declining interest In the new environment, GPs that chase after managers with whom they have established in China, they have already deployed the capital pension funds because they have the biggest relationships. This means that, once again, the with the fund-of-funds. These fund-of-funds are pockets could be outmaneuvered by those who burden falls on smaller, still-growing GPs to meet probably less cynical about China than the direct are willing to accept money from other sources. a standard that their larger or better-known capital owners.” “Historically it’s always been, ‘I want US colleagues do not have to face. However, this environment too is changing, endowments and foundations.’ That was the The difficulty that comes along with increased and some of the old assumptions do not apply thing that everybody wanted, to have Harvard as demands can be seen in the case of India’s anymore. Funds-of-funds themselves are finding an investor,” says Niklas Amundsson, managing Multiples Alternative Asset Management, which it harder to raise money, as outside LPs become director at placement agent Monument Group. is currently raising its second India-focused fund. more familiar with the local scene and more “Today it’s more, ‘I want US public pension Canada Pension Plan Investment Board (CPPIB) confident in their ability to deal with local funds money, because that’s sticky capital, and anchored the debut vehicle and industry sources themselves. it’s always going to be there.’ Just because

8 avcj.com | June 30 2015 | Volume 28 | Number 24 COVER STORY [email protected]

something is trending at the moment, it doesn’t specifically the biggest markets, such as China, to all differentiated. And you can see that coming mean it is right for you.” take more of a place in private equity portfolios.” already in Asia, in the way that GPs present It is clear that the refocusing of larger LPs will themselves.” Positive forces create a harsher environment for smaller GPs, In the case of side letters, these too have Perhaps the most troubling implication of the and one in which many managers could find a welcome herd-thinning effect. GPs that can “CalPERS cull” is that of a general retreat from Asia themselves unable to cope. However, as industry meet the demands of skeptical LPs will quickly for US investors. The headline numbers do not professionals point out, a more challenging earn themselves a reputation for discipline and suggest this to be the case, or at least not yet. environment is exactly the circumstance professionalism. Although established firms have Private equity fundraising reached a record $68.3 that creates evolutionary pressure and forces an unfair advantage in this space – a well-known billion last year, the highest level since 2011, adaptation. GP can always dictate its own terms – in the which coincided with the height of the renminbi- For one thing, while Asian managers lack the long run GPs that can meet these requirements denominated fundraising boom. What is unclear experience of their US rivals, they also have the may find themselves better-equipped for hostile is where the money is coming from. advantage of being able to learn from the history conditions than those currently making it by on Even among the larger managers, while they of the US market. With the global economy their reputations. may not have seen a retreat, the balance has growing more interconnected, US and Asian GPs Industry watchers agree that small GPs have shifted from the US and Europe to Asian and have increasingly similar backgrounds. In many tough seas ahead, but they see this as a feature Middle East investors. In Affinity’s fourth fund, cases, senior executives at indigenous Asian firms of any healthy market. Instead of bemoaning which closed at $3.8 billion last year, LPs from started out working in private equity firms in the their bad luck, managers should get to work these regions accounted for 39% of the total US, before returning to their home countries. planning their course and making their plans for corpus, compared to 15% in the previous vintage. This bank of knowledge and experience may survival. The reward for a good approach will be The North American share dropped from 50% to allow the Asian private equity market to develop to stay afloat after the storm recedes, and to be 38%. This is not unusual for Affinity’s peer group. faster than others at a similar point in their cycles. better prepared for the next one. However, UBS’ Movsoumov argues that, if GPs can build business models intended to avoid “Market crashes and market downturns are there has been a drop off in the US contribution, the pitfalls that those markets faced early on. always good for filtering out the weak, and it is more of a realignment than a permanent “Sector-specific is very hard to find in Europe. those who should not be raising money in the withdrawal. “If you rewind back 8-10 years ago, It’s still very much regional, while in Asia, first place,” says TorreyCove’s Poon. “So then the there were a lot of LPs that had no emerging sector-specific is quite healthily growing. And strong get stronger, and eventually you’ll be on markets pocket at all,” he says. “But I think the the US is virtually all sector-specific now,” says a par with the global players that have, basically, trend is definitely for emerging markets, and MVision’s Guen. “They’re all defined, and they’re international standards.”

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 FOCUS [email protected] From Beijing to the Bay Area Chinese technology companies are becoming more interested in backing US start-ups, with some groups even building local teams in Silicon Valley. What does this mean for the start-up community?

RENREN, THE SO-CALLED FACEBOOK OF among Asian companies, especially Chinese commitments to funds managed by local GPs. China, wants to end its tenure as a US-listed technology firms, to look for investments in For example, Qihoo360’s venture investment company and return to private ownership. The Silicon Valley. They are building corporate VC group is led by Edward Tsai, who previously business has been struggling for years to grow its arms that provide capital with the promise of worked at DCM in Silicon Valley. user base as China’s younger generation prefers strategic support in Asia. But is the local start-up The rest of Asia is represented by a handful to conduct its social networking via smart-phone community buying into it? of South Korean and Japanese conglomerates. apps such as Tencent’s WeChat and Sina’s Weibo. Then, last month, Taiwan’s National Development Revenue came to $83 million last year, a 43.9% First steps Fund and Ministry of Science & Technology drop from 2013, while net income fell from $64 Tencent Holdings was the first Chinese tech firm agreed to form $120 million VC fund that will million to $60 million, and then turned into a loss to establish a beachhead in Silicon Valley in 2005. invest in venture funds targeting Taiwan and of $27.6 million in the first quarter of this year. The company, which rose to prominence with Silicon Valley start-ups. However, Chinese groups Led by founder and CEO Joseph Chen, Renren is an instant-messaging app QQ, wanted exposure remain the most active players, partly because trying to revolutionize its business by investing in to new technologies coming out of the US. This they have more to offer in terms of value-add. start-ups far removed from social networking and was a key factor in the creation of WeChat. Even “The bigger purpose for these Chinese games. Most of the targets are in the US. though competition was less competitive back companies is to try and find some innovative Earlier this year, Chen announced that Renren then, it still took Tencent almost five years to train products or businesses and create cooperation would invest $500 million in the financial sector, up its staff and fine tune its investment strategy. that could make them look different to their forging a new business model for the company. Another two Chinese tech giants, Baidu competitors at home. They have ample cash and Mortgage marketplace LendingHome is one of and Alibaba Group, have also formed their US this money needs to go out. That’s why a lot of these fintech bets, having received $70 million investment teams. Alibaba arrived last year VC funds have been set up here,” says Xiao Wang, in April. Stock trading site Motif, real estate after its record-breaking IPO, although it took a CEO of the InnoSpring Seed Fund, a Sino-US platform Fundraise and peer-to- short-cut to become familiar with the start-up technology-focused incubator. peer lending site Social Finance are among the landscape: the company hired the likes of ex- other US-based start-ups to receive backing. Liberty Media executive Michael Zeisser and Mike Differing agendas Every company has a different purpose when investing. Tencent initially it hoped to acquire Investments by Asian companies in US start-ups North American client-based game studios that 6,000 80 could deliver high-quality games – and therefore revenue – to its platforms, but it didn’t really 5,000 70 take-off. This specific remit meant that Tencent 60 4,000 America passed on opportunities to invest in 50 3,000 YouTube and Twitter, which didn’t fit with the 40 Deals company’s China operations. US$ million 2,000 30 In recent years, it has expanded into other 1,000 20 content-generating categories, such as social 0 10 communications, online music and movies. 2010 2011 2012 2013 2014 2015 Unlike other Chinese tech firms, which usually No. of deals Capital invested (US$ million) come in at later stages, Tencent invests early, Source: PitchBook either directly or through local VC funds. It has accumulated a portfolio of nearly 80 seed investments so as not to miss out on the next big “We all understand that Renren has lost the Katz, formerly of Battery Ventures. thing among US start-ups. advantage in its core operations. There is a joke They have now been joined by second-tier Alibaba’s strategy is more concentrated. Some that the company’s future market valuation will Chinese tech firms including antivirus software investments related to its ecosystem, such as a equals its current cash flow, which is negative. developer Qihoo360, online retailer JD.com, delivery service provider ShopRunner. Others, However, Joseph is admittedly a talented and game developers Changyou and Sohu. including a $280 million commitment to voice financial investor,” one US-based investor says. Participation isn’t restricted to internet players. and video mobile app Tango and $200 million Whether Renren can come up with a Electronics manufacturers Huawei and Gome, as investment in social network Snapchat, are new idea through a string of start-ups and well as Chinese conglomerate Fosun Group, are denounced as “nonsense” by industry participants subsequently transform its business remains to setting up investment units in the valley. because there is no link to Alibaba’s current seen. But certainly there is an increasing trend A few have their own VC funds or are making business. However, Snapchat and Tango seem to

10 avcj.com | June 30 2015 | Volume 28 | Number 24 FOCUS [email protected]

be a direct push against Tencent’s stranglehold China story, but how many of them are really after going public. He sees little chance of a on chat and cross-platform services. be able to offer what they have promised? Only US company achieving fast growth in China. Baidu, meanwhile, is forging ahead quietly, a few. That’s the same story when a lot of US A recent example is the battle between the mainly building R&D centers in the valley. For venture funds said to the Chinese start-ups that domestic taxi-booking platforms, Didi Dache and JD.com and Qihoo360, the focus appears to be they can help the Chinese companies expand in Kuaidi Dache, which have now merged and are the internet-of-things. the State but actually not many of them walk the trying to squeeze out Uber. “Many Chinese companies have built words,” Fosun’s Bao says. At the same time, it is difficult for Chinese investment units in Silicon Valley. But few of them Most US start-ups still prefer to receive capital strategic investors to enter the US. As such, it operate independently by making investments from the US venture capital firms because they seems fanciful that a company might complete from their own funds. Often times the money focus on their domestic market in the early a spree of bolt-on acquisition over the next three comes from the company’s balance sheet, carries stages. Even if they gain traction at home, years and succeed in driving up its valuation. The a strategic mission, and the parent companies entering China represents a challenge due to the US is more a market for minority investments have influence on the investments,” says Brad intensity of competition. through which to keep tabs on technology Bao, managing partner at Fosun Kinzon Capital. “I tell the US start-ups, ‘If you are considering development and build up a track record in order In this respect, Fosun Kinzon Capital is taking money from Baidu, Tencent or Alibaba, to source the best deals in the future. different, which is part of a wider effort to you’re going to have limitations in terms of who Expansion is the primary objective in transform the group to be a global investment you can work with in the China on products emerging markets such as Southeast Asia, firm. The $320 million early-stage venture fund, distribution or business partnerships,” says Chris India and Africa, given the demographic and in which Fosun is the sole LP, only wants financial Evdemon, a Silicon Valley-based partner at developmental similarities with China. returns. Over the past two years, it has backed China’s Innovation Works. “You might even have “I don’t anticipate a wave of M&A by Chinese over 30 start-ups in both China and Silicon Valley. enemies before you come in.” strategic investors in the US. Most US companies US-based VC investors understand what would prefer to sell to US buyers such as Amazon China expansion? strategic investors can bring to portfolio or Google because they understand them better. American companies are also keen to find companies with the scope to enter new markets. Sometimes Chinese strategic investors have to strategic partners that can support their But at the same time, they may not grasp the overpay if they want to acquire an US company,” expansion into China. They are familiar with the level of competition in China’s technology space, says Hans Tung, managing partner at GGV likes of Baidu, Alibaba and Tencent, but less so or how the different leading players behave. Capital. “But it could change in the next few years with the second-tier players. Evdemon notes that these companies as groups become more familiar with each other “Everyone is talking to US start-ups about the cleaned up a lot of potential domestic rivals and more comfortable about cooperating.”

10th Annual Private Equity & Venture Forum USA 2015 GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY 9 July 2015 HOW TO REGISTER: • Book your place at avcjusa.com/book-now • Email us your booking form to [email protected] or fax it back to +852 3411 4811 • Call Jayla Tam on +852 3411 4935

Registration: Jayla Tam T: +852 3411 4935 E: [email protected] Sponsorship: Darryl Mag T: +852 3411 4919 E: [email protected] Enquiry

Co-Sponsors

avcjusa.com Join your peers #avcjusa FOCUS [email protected] Hedging bets in India Everyone is trying to get of the piece of tech story in India and US hedge funds are not different, but what will their entry into the early stage rounds mean for the broader venture capital industry

THE ACQUISITION OF TAXIFORSURE BY involving VC-backed tech companies in China. involving tech companies to a sort of “private rival Ola in March all but ended the battle for The prime example is Alibaba Group, which IPO.” Last month CB Insights, which tracks the supremacy among India ride-sharing apps. The raised $25 billion last year, generating blockbuster early-stage venture capital globally, reported $200 million cash-plus-equity deal combined returns for the likes of Silver Lake, which invested that so far this year private market fundraising TaxiForSure’s 15,000 taxis across 47 cities with $500 million in 2011 and 2012. as outstripped the public markets: US start-ups Ola’s 70,000 taxis and 30,000 auto rickshaws “For many of these funds that invested in the have raised $600 million though public offerings across 85 cities to form the country’s largest China opportunity – specifically around Alibaba versus $20 billion through private offerings. In provider. Its footprint is said to be 10 times that of and Tencent Holdings – it has been a rollicking India the disparity is greater. nearest rival Uber India. success, but it has also been a huge missed Ozi Amanat, founder of VC firm K2 Global, A key factor behind Ola’s success has been opportunity for those that didn’t,” says Bhinde. “I similarly describes a rise in larger private IPOs its ability to secure a large chunk of the market think that is when the momentum built up, with driven by hedge funds struggling to generate early on and expand rapidly. This – plus the people asking: where is the next Alibaba going to return in the public markets. “What they are recent acquisition – has seen the company burn be built? Where is next frontier?” doing is battling for turf space in the late-stage through a lot of cash. The capital feeding the fire companies and it is a mixed bag as to who is was not only sourced from VCs but also from getting access,” says Amanat, whose firm focuses a growing group of less traditional early-stage “If you look at the on pre-IPO rounds. “Traditionally, they are not investors: hedge funds. the players who would be going into these Ola has received capital from a least four money multiple around companies. It’s almost like you are having these hedge funds and one . Its the success of these mini-IPOs in the private market.” most recent round, which came a month after the TaxiForSure acquisition, saw the company late private rounds, it Cause for concern? raise $400 million in a round led by DST Global Inevitably some in the industry worry that at a valuation of $2.4 billion. Other investors has been much more these increasingly larger rounds are leading to included hedge funds Steadview Capital and satisfying than the unrealistic pricing. The concern is that hedge Falcon Edge Capital, Tiger Global Management funds and other non-traditional private market (which runs a combination of PE and hedge money multiple on investors have driven up valuations to unrealistic funds), and VC firm Accel Partners and Singapore levels by piling into late stage rounds, as was state-backed fund GIC Private. investments as they seen in the dotcom era. Yet not everyone is Ola is part of a broader trend that has seen have gone public” – David York convinced that the comparison is justified. hedge funds from both the US and Asia target Top Tier’s York, for example, notes that, opportunities in tech companies across the especially in Asia, technology start-ups have far region, with India a particular hub of activity. The reason that hedge funds have started larger addressable markets than the companies What does the increasing presence of hedge looking towards late-stage VC rounds is that tech of the dotcom era. “What is different this time funds in late-stage rounds say about the current start-ups in general are seeing far greater value round is that the businesses themselves are state of venture capital? accretion at the pre-IPO stage, while growth much bigger, much more profitable, and much following listing has typically been modest by more successful,” he says. The next big thing comparison. This phenomenon is often described Meanwhile, many observe that participation Some largest VC rounds in India over the in the context of US venture capital, though the from hedge funds in later-stage deals is filling past two years have included hedge funds. same pattern is playing out globally. a gap in Indian venture capital. Vani Kola, E-commerce player Flipkart, for example, “The public markets have become beta, managing director of Kalaari Capital, which counts Steadview, Tiger Global and Greenoaks while the private markets are becoming alpha,” counts furniture retail Urban Ladder – which Capital among its investors. Tiger Global has says David York, managing director and CEO of raised $21 million from Steadview last year – backed e-commerce platform Shopclues and US venture capital-focused fund-of-funds Top among its portfolio companies, is of this view. property portal Commonfloor among others. Tier Capital Partners. “If you look at the money “Especially in India there is a gap in late-stage To understand stand what is happening in India multiple around the success of these late private VC capital, and hedge funds can help bridge today it is worth looking at what has also been rounds, it has been much more satisfying than it,” she says. “Secondly, I think they help bring happening in China’s tech space. the money multiple on investments as they have maturity to start-ups as these kinds of investors Aashish Bhinde, executive director as Mumbai- gone public.” have different expectations from the companies based Avendus, which has advised on many of With the shift in emphasis from public market they back in terms of the information they must these rounds, notes that the hedge fund activity to private markets, many – including Top Tier’s provide and reporting. As a kind of transitional comes in the wake of a number of successful IPOs York – have compared many late stage VC rounds venture capital, it is complementary.”

12 avcj.com | June 30 2015 | Volume 28 | Number 24 FOCUS [email protected] Mind the gap The fact that the US needs to improve much of its public infrastructure is undisputed. But the fragmented nature of the market and politicization of deals still leave private investors frustrated

US INFRASTRUCTURE INVESTMENT HAS last year emphasized the trying byproducts office with removing impetus for the project. a powerful advocate in Larry Fink, chairman of underinvestment in public infrastructure: “They took this deal right through to almost and CEO of BlackRock. “Infrastructure in the drivers annually spend 5.5 billion hours in traffic, signing on the dotted line and it has basically US is dismal – whether it’s crumbling roads, resulting in $120 billion of losses in terms of fuel died. Consortia have spent several million dollars underfunded public transportation networks, and time; businesses pay $27 billion in additional in bid costs and an awful lot of time to get to that or less visible things like power grids and sewer freight costs because of poor roads; and there stage and it’s just pure politics going against the systems,” he wrote last September before coming as approximately 240,000 water main breaks per project,” Garbutt says. “It is buyer beware.” up with a shopping list of suggestions. year due to deteriorating supply infrastructure. The courthouse was a greenfield project, Fink wants cash-strapped local governments At the same time, governments are directing but industry participants are united in the view to partner with the private sector to get projects less capital at these problems. Public spending that brownfield is the real problem. Although funded. He wants governments to aggregate on drinking and wastewater projects, for the private sector already accounts for a lot of assets in order to attract private investors. And he example, declined 23% between 2006 and 2013. US infrastructure, there is residual discomfort in likes the idea of a federal infrastructure bank that The American Society of Civil Engineers estimates privatizing assets and transactions can escalate would offer central leadership. that the country’s cumulative infrastructure into points of political contention. Privatizations Despite the White House seeking to provide needs will total $2.7 trillion by 2020, and public therefore remain relatively rare and Garbutt says impetus with the Build America Investment Initiative, political risk – the fear that a tender issued by one administration will be withdrawn “The demand has always been there but dealing by the next – is the sector’s most pressing problem. The US needs an infrastructure upgrade with political cycles and different levels of and investors, including Asian institutions government is a problem” – Julio Garcia building out their portfolios, like low-yield, long- term, cash-generative projects in developed markets. But they don’t like uncertainty. funding will cover only 60% of the cost. he often reminds sellers that it is not all about “Many investors want to diversify their Public-private partnerships (PPPs) have not getting the highest price: money has to be left holdings in North America and it is logical for achieved the same critical mass as in other on the table for investors must sign off on certain them to be interested in US infrastructure, developed markets, largely because local pricing and service quality requirements in order but the opportunity set is still quite skewed governments have been able to rely on the to protect public users. towards energy and utilities,” says Kerry Ching, municipal bond market to finance infrastructure. Asia managing director at AMP Capital. “Some With bond issuance declining in recent years Hope in Indiana? telecom deals have come up in the last few years, and governments reducing commitments to IFM’s Garcia sees hope in the form of the Indiana and we think there will be more, but compared infrastructure, there are calls for more innovative Toll Road Concession Company. The asset was to a full-spectrum market like Australia, the US is forms of funding. Adopting private market privatized in 2006 with more than 80% debt and still relatively confined to specific sectors.” solutions, such as PPPs, is one option. went bankrupt last year. IFM acquired it in March However, private investors have in the past for $5.7 billion – and with much lower leverage Public problems struggled to secure privatizations of assets. The – bringing in a string of US pension funds as Energy appeals because public sector fragmentation of the market is one challenge investors alongside other global institutions. involvement is rare and it potentially offers – municipal and state authorities have the There is more investor interest in core higher returns than traditional core infrastructure. greatest say in how projects are allocated – and infrastructure and US pension funds are no Global Infrastructure Partners’ entire US portfolio it exacerbates the other: political uncertainty. exception. Whether acting with fund managers comprises energy assets, while IFM Investors “There have been a couple of high-profile or independently, these groups may be seen as four out of five US projects are in energy and examples of bids going pretty late in the process more acceptable buyers and US infrastructure power. Nine of Brookfield Asset Management’s 16 and then cancelled. We see that less in some privatizations can deliver on their potential. projects in the country are energy-related. other jurisdictions,” says Julio Garcia, head of “That is where the industry is thinking things While praising the ethos behind the Build North American infrastructure at IFM. will go, it really depends on how quickly,” says America program, one executive with a leading Andrew Garbutt, a principal at KPMG who Garcia. “The demand has always been there infrastructure player says that his objectives advises on US infrastructure deals, points to the but dealing with political cycles and different include developing partnerships with likeminded debacle over the $500 million Indianapolis city levels of government is a problem. Maybe it is investors on deals. “Typically, those investments courthouse project that unfolded over the course easier to get comfortable about a bunch of local do not include governmental entities.” of the last 18 months. He blames the decision pension funds coming in and backing critical A US Department of Treasury report released by Mayor Greg Ballard not to seek a third term in infrastructure than traditional private capital.”

Number 24 | Volume 28 | June 30 2015 | avcj.com 13 ESG FORUM Co-hosted by: 2015 18 September | Renaissance Hong Kong Harbour View Hotel SAVE US$200 Book before 31 July 2015 Mitigate risk and maximize exit returns with responsible investing The first event of its kind in the region, the inaugural AVCJ PRI Responsible Investment Forum will provide a platform for education, benchmarking and the exchange of ideas on how GPs operating in Asia can incorporate Environmental, Social and Governance (ESG) principles across the companies in their portfolio.

Attend this educational Forum and learn:  The first steps a GP needs to take to develop an  How LPs evaluate ESG factors when ESG programme reviewing Asian GPs  The risks that are specific to Asia and how ESG  How sound ESG practices help you attract can be used to safeguard your investment buyers and maximise returns at exit  How you go from data gathering to reporting  The top 5 ESG considerations LPs look for portfolio-wide on ESG when evaluating a GP  The fundamentals for implementing a due diligence function that assesses every potential investment specifically for ESG risks and opportunities Limited Partners - Apply for the Complimentary Pass NOW! PLEASE CONTACT OUR PROJECT TEAM FOR: REGISTRATION ENQUIRIES: Pauline Chen t: +852 3411 4936 e: [email protected] SPONSORSHIP ENQUIRIES: Darryl Mag t: +852 3411 4919 e: [email protected] SPEAKING OPPORTUNITIES: Jonathon Cohen t: +852 3411 4968 e: [email protected] MARKETING AND MEDIA ENQUIRIES: Priscilla Chu t: +852 3411 4706 e: [email protected]

Co-hosted by Supporting Organisations

Join your peers avcjesg.com #avcjesg ESG FORUM Co-hosted by: ROBERT PETTY | INDUSTRY Q&A 2015 [email protected] 18 September | Renaissance Hong Kong Harbour View Hotel SAVE US$200 Book before The contrarian 31 July 2015 Robert Petty, managing partner and co-founder at Clearwater Capital Partners, explains why a strong credit and special Mitigate risk and situations investment strategy in Asia often involves going against the grain maximize exit returns Q: What patterns have there lending investments, through any economy. We are proudly give an example of this? been in your investment our two China platforms and doing this. A large percentage A: We are participating in the strategy in the last five years? provide loans or structured of the lending markets in the Suzlon Energy restructuring – it with responsible A: If you look at opportunity sets investments that enable us to US and Europe – over 25% – is is one example of a market post-global financial crisis, we make investments offshore. non-bank, which means getting that has turned around, both investing have consistently remained For individual credit, we find capital to small and medium- the economy and the industry, contrarian in Asia and the sized enterprises and to parts during this period. Two years ago strategy continues to perform of the economy the banks renewable energy businesses The first event of its kind in the region, the well for us. Two years ago I stood don’t serve. The Chinese credit were in great difficulty. Under on stage at the AVCJ Forum and market is worth $20 trillion today the Narendra Modi regime they inaugural AVCJ PRI Responsible Investment said India was an interesting and clearly direct lending will received a reboot and these Forum will provide a platform for education, market; that was a counter- continue to develop as it has in businesses are now profitable cyclical, contrarian theme. We the US and Europe. and fundamentally turned benchmarking and the exchange of were doing well-underwritten, around. Suzlon has been fully ideas on how GPs operating in Asia can interesting deals at a time when Q: Do you invest in non- restructured, sold a business no one wanted to do them in performing loans (NPLs)? in Europe for a $1 billion incorporate Environmental, Social and India and they have proved to A: We can and do invest in NPLs but and its stock price has risen be compelling investments, we’ve found it less opportunistic considerably. Governance (ESG) principles across the such as Jaiprakash Power and for us than investing in companies in their portfolio. Suzlon. Volatility continues to performing businesses generally. Q: What sectors, throughout be a dominant theme in Asia “Two years We find dealing with large the region, are you most and that creates opportunities. businesses that are cash flow interested in at present? Being contrarian across Asian ago I stood on positive, can deliver a more stable A: We are looking at sectors that are economies, industry sectors stage at the and consistent return profile. facing cyclical challenges today, Attend this educational Forum and learn: and macro environments has Realizing 10 or 20 cents on the such as oil and oil services, and generally allowed consistent, AVCJ Forum and dollar through a legal court businesses in sectors that are  The first steps a GP needs to take to develop an  How LPs evaluate ESG factors when interesting valuation entry points, process is painful, and uncertain facing difficulties, particularly ESG programme reviewing Asian GPs while creating steady portfolios said India was in terms of timeframe. We would those that are commodity- and, equally interesting, exit an interesting much rather lend to the number related. In Singapore we see  The risks that are specific to Asia and how ESG  How sound ESG practices help you attract opportunities into the volatile five player in an industry that is opportunities in hard assets can be used to safeguard your investment buyers and maximise returns at exit upswings of the markets. market; that having a weak quarter or year but such as oil services and shipping still makes money. related assets. It is more direct  How you go from data gathering to reporting  The top 5 ESG considerations LPs look for Q: What has been the impact of was a counter- lending than stressed situations portfolio-wide on ESG when evaluating a GP slowing growth in China on cyclical, Q: How does Clearwater’s China – real businesses with assets you investment opportunities? strategy compare to India? can lend against that have gone  The fundamentals for implementing a due diligence A: While there is a slowdown in contrarian A: It is a very similar core through difficulties. In Australia function that assesses every potential investment China, that has created greater theme” underwriting thesis, there are we also like the opportunity specifically for ESG risks and opportunities opportunities for businesses similar structural enhancements, set in mining services, and Limited Partners - Apply for the that are still making money. A but very different cultural with the consolidation of core Complimentary Pass NOW! non-growth, stable business is both the onshore and offshore approaches. The two markets businesses we are focused on PLEASE CONTACT OUR PROJECT TEAM FOR: actually a very good lending markets increasingly deep, are 10 years different in scale those companies who will be client and customer at a time diversified and growing. and maturity. For example, survivors. This cycle may or may REGISTRATION ENQUIRIES: Pauline Chen t: +852 3411 4936 e: [email protected] when there are fewer lenders property developers in China not be different to the last one. Is SPONSORSHIP ENQUIRIES: Darryl Mag t: +852 3411 4919 e: [email protected] and banking institutions are Q: How much competition do you have a 10 million square meter the economic rebound globally SPEAKING OPPORTUNITIES: Jonathon Cohen t: +852 3411 4968 e: [email protected] more risk-adverse. In terms face from shadow banking? development track record; going to be as fast as it was in MARKETING AND MEDIA ENQUIRIES: Priscilla Chu t: +852 3411 4706 e: [email protected] of amount of activity and A: What is shadow-banking? It’s whereas in India, you are large if 2009-2010 and is China going to dollars invested in China, non-bank lending. If you are you have executed 2 million sqm. be as strong a commodity swing our main focus has been on doing solid, well-underwritten factor as it was at that time? We Co-hosted by Supporting Organisations direct lending, with some transactions onshore then you Q: You said that Clearwater has are thoughtful that China may be offshore stressed situations. We are participating in non-bank benefited from its contrarian a more steady-state consumer of participate in onshore direct lending, and it is useful for approach to India. Can you coal than it was before. Join your peers avcjesg.com #avcjesg Number 24 | Volume 28 | June 30 2015 | avcj.com 15 28TH ANNUAL EARLY BIRD ENDS

28TH ANNUAL REGISTER The largest and NOW most influential AND SAVE gathering of US$700 private equity and venture professionals in Asia

FRIDAY, 10 July Confirmed Keynote Speakers 3-5 November 2015 Four Seasons Hotel, Hong Kong This Year Include:

Stephen Pagliuca Managing Director BAIN CAPITAL

Howard Marks, CFA, CIC SAVE Co-Chairman OAKTREE CAPITAL MANAGEMENT

Charles R. Kaye Co-Chief Executive Officer US$700 WARBURG PINCUS

Niklas Zennström CEO and Founding Partner ATOMICO

“ The Hong Kong AVCJ conference is the longest standing private equity conference in the Asian private equity industry and continues to go from strength to strength.” Brochure available, Marcus Thompson, Chief Executive Officer,HEADLAND CAPITAL PARTNERS LIMITED

Scan this QR code with your Join mobile phone your peers to review AVCJ Forum latest download now at avcjforum.com avcjforum.com #avcjforum updates

3-5 November 2015 Top 5 reasons to attend: Four Seasons Hotel, Hong Kong Build a global network of contacts before, during and after the conference through 1 dedicated networking events, an event app, social networks and online communities

Find out the latest industry challenges and 2 discuss how your peers are tackling them Utilize the AVCJ Forum’s excellent LP-GP ratio to 3 boost your investor relations platform and raise awareness for your firm

Join over 1000+ attendees representing the 4 best GPs and LPs in the world Hear from 170+ senior speakers who are 5 leaders in private equity investments in Asia

Registration enquiries: Carolyn Law T: +852 3411 4837 E: [email protected] Enquiry Sponsorship enquiries: Darryl Mag T: +852 3411 4919 E: [email protected]

Lead sponsors Asia series sponsor

Co-sponsors

Legal sponsors VC summit sponsors VC summit legal sponsor

PE leaders’ summit sponsors LP summit sponsors

Exhibitor Join your peers avcjforum.com #avcjforum