AVCJ & Venture Forum 2010 India Summit 2010 New Delhi 26 - 27 August

Hong Kong 9 -12 November 2010 ASIAN JOURNAL

Asia’s Private Equity News Source avcj.com July 27 2010 Volume 23 Number 28

Editor’s Viewpoint It’s a wrap Page 3 News PRIVATE EQUITY ASIA Private equity and VC news of the week, with Actis, Blackstone, Carlyle, CHAMP, CVCI, Evolvence, IDG, Khazanah, Sequoia, Starr, TPG Page 5 Deals of the Week Gung-ho for Kyobo as M&A ASIA buyout firms assess stake Page 13 Bain goes for Mr. China’s ASIMCO Page 13 Fundraising News Navis VI nears $1.2 billion close Page 15

Industry Q&A The dynamics of Industry Q&A: Hu Zhanghong, CEO, CCB International Page 17 Limited Partner Q&A: secondaries International Finance Once-owned LP positions for Asia Pacific and elsewhere Page 8 Corporation Page 19

Deals of the Week Fundraising News

Yellow Pages auction Greene’s Diamond Dragon up a gum tree? Page 11 takes flight Page 15 Anything is possible...

There are many barriers to liquidity in private equity: complexity, transaction size, deadlines, disparate assets, confidentiality, alignment, tax, shareholder sensitivities – the list goes on.

European Secondaries Firm of the Year But with creativity, experience and determination ... anything is possible. for the 6th consecutive year www.collercapital.com

London New York 33 Cavendish Square 410 Park Avenue London New York

Liquidity for private equity investors worldwide Contact: [email protected] Editor’s Viewpoint [email protected] ASIAN VENTURE CAPITAL JOURNAL

Managing Editor Paul Mackintosh (852) 3411 4909 PRIVATE EQUITSeniorY Editor ASIA Brian McLeod (1) 604 215 1416 Associate Editors Maya Ando (852) 3411 4908 Christina Kautzky (852) 3411 4906 Anita Davis (852) 3411 4808 M&A ASIACreative Director It’s a wrap Dicky Tang Designers Catherine Chau, Mansfield Hor, ManYee Mak, Tony Chow

Chief Representative, Beijing Ying Jiang (86)10 5869 1196

Research Manager Helen Lee Research Associates Alfred Lam, Tweety Lau, Kenny Hung, Venus Yeung Circulation Manager Sally Yip Circulation Administrator Prudence Lau Senior Account Manager Gareth Wilde Sales Coordinator Debbie Koo In the course of several unrelated Yet on practical grounds, rather than prestige Senior Manager, Delegate Sales Anil Nathani discussions on secondaries last week, I was or perceived value, a wrap deal with a bank may Marketing Manager reminded of one of the more curious byways of make a lot of sense. Many banks already have Edward Ma private equity fund investment: the wrap. This, in active placement units, and these can build Marketing Communications Manager case you also need reminding, is when a banking useful synergies with the parent’s private wealth Joann Yip Director, Business Development institution picks up a sizeable allocation in a GP’s groups to deliver an end-to-end solution for at Darryl Mag latest fund, and then dices up the allocation least part of a fundraising. And a GP that deals Conference Managers into a series of packaged smaller chances, regularly with a bank for leverage, deal sourcing Emily Mak, Matthew Swainson, Doris Chan Conference Administrator which it then sells on to clients, almost always and other purposes may well wish to cultivate a Amelie Poon HNW customers of its private banking/wealth strategic relationship with that group through a Conference Coordinator management arm. Individually, most of the fund allocation. Fiona Keung, Belinda Kwong HNWs could not normally afford the minimum However, the whole principle of a wrap Publisher & General Manager access threshold for the fund, but the wrap gives still calls even more into question the myth of Allen Lee them a chance to participate in private equity access. As AVCJ sources have remarked time Managing Director Jonathon Whiteley that they would not ordinarily get. and time again, pre-crisis, post-GFC and right Vice President, Administration Although not much seen in Asia to date, now, exclusivity went out the window when Harmony Heung wraps are growing increasingly significant in the fund sizes started soaring into the multi- Chairman Emeritus Dan Schwartz region, and in the PRC in particular, are often the billion-dollar range. Especially in the still- prime fundraising mechanism for RMB funds. difficult fundraising environment since 2008- This could be cause for concern. In itself, the 09, GPs are increasingly reluctant to turn away Incisive Media 20th Floor, wrap is naturally vulnerable to all the problems money, and particularly to give preferential Tower 2, Admiralty Centre 18 Harcourt Road, of securitized – and often leveraged – vehicles treatment to any LP in a manner that would Admiralty, Hong Kong that the GFC exposed. The kind of alignment cut out others. GPs, AVCJ sources admit, simply T. (852) 3411-4900 F. (852) 3411-4999 and disclosure issues already raising the hackles want to access the capital. E. [email protected] of LPs worldwide are also only magnified in a The ultimate lesson for LPs should be obvious. URL. avcj.com wrap structure. And legal issues surround the If somebody and their agent is telling you that Beijing Representative Office questions of how the vending institution markets something is an exclusive deal, and demanding Room 1805, Building 10, Jianwai SOHO, 39 East 3rd-Ring Road, the wrap to its investors, and whether they are a price premium or a higher commitment on Chaoyang District, Beijing 100 022, China sophisticated enough to really understand the that basis, see what happens if you walk away. T. (86) 10-5869-6205 product. Sources aver that, in China especially, As an industry still too wedded to secrecy, F. (86) 10-5869-7461 E. [email protected] many aren’t, even if they are HNWs. obscurantism and opacity, private equity needs More to the point, observers might ask why a to have its myths challenged from time to time The Publisher reserves all rights herein. Reproduction in whole or in part is permitted only with the written consent of AVCJ Group GP would even give an allocation to a bank to do – especially the self-serving ones. Limited. AVCJ Weekly is delivered in QuVu format, which is licensed from and used by permission of Qiosk.com, INC. a wrap. After all, exclusivity and privileged access ISSN 1817-1648 Copyright © 2010 are the stock in trade of many intermediaries in the business, who promise access to top-quartile Paul Mackintosh and top-decile funds. Many GPs cultivate the Managing Editor image of exclusivity to keep investors keen. Asian Venture Capital Journal

Number 28 | Volume 23 | July 27 2010 | avcj.com  Erasmus Habermel, detail from “Perpetual Calendar”, c. 1600 Liechtenstein Museum, Vienna Collections of the Prince Liechtenstein, Vaduz, © Leading the way in alternative investing LGT Capital Partners is a leading private equity fund of funds manager and secondary specialist with USD 14.5 billion in private equity commitments, providing portfolio management and liquidity solutions since 1998.

LGT Capital Partners leads secondary investments in: • Buyout and Venture Capital partnerships • European, U.S. and Asian assets • Special situations (unfunded positions, direct secondaries) For further information please contact André Aubert ([email protected]) or Sascha Gruber ([email protected])

R WINNE Private equityof manager the year LGT Capital Partners 2010 AWARDS Partners LGT Capital t Investmen Alternative Pfaeffikon, New York, London, Dublin, Hong Kong, Tokyo Manager www.lgtcp.com, [email protected] News

French hotel group Carlyle completes Kbro exit to Tsais than $2 billion of real estate fund Accor to set up The Carlyle Group investments, focused on Asia, has reportedly operated by Bank of America investment fund for finalized the exit of its Merrill Lynch. In Japan, Blackstone India Taiwanese cable TV has kept its real estate team in tact investment Kbro to the being despite closing no deals Accor, a leading French hotel group, Tsai business family, since its opening in Tokyo in 2007. is setting up a investment fund with owners of Taiwan Mobile, the company that Carlyle originally planned to local partner InterGlobe Enterprises exit the asset to. BofA ML gets to grow the hotel business in India, Taiwanese media sources gave a valuation of up to $2 billion on the targeting upper-middleclass and deal, though earlier reports quoted $1 billion as the value of the share-swap Killingback in Oz high-end customers deal that Carlyle had originally planned with Taiwan Mobile. Reports also Former head of retail and The group is currently the indicated that the Tsais have formed a private company to buy the assets consumer investment banking fourth-largest hotel chain operator and sealed a deal with Carlyle late last week. for Deutsche Bank Asia David worldwide after InterContinental, Killingback has reportedly joined Marriott and Starwood. In its Bank of America Merrill Lynch as its expansion plan, British Columbia- PE-backed Ambow Blackstone may Head of Mergers & Acquisitions in based asset manager Pacifica files for NYSE IPO take over Morgan Australia. Partners will take a 36 % stake in According to reports, Hong the fund, which will initially hold Ambow Education Holding Stanley’s Japan real Kong-based Killingback is slated to assets for seven hotels, including Ltd. - a PRC education and estate assets assume his role early next month. one Pullman, four Novotels and career development service He will report to the head of the two Ibis in India, worth around provider backed by Actis, CStar Leading global private equity firm bank’s Australian investment $325 million in total. Those hotels Investment, EdVenture, JAFCO Asia is said to be banking division Kevin Skelton. are expected to open between Technology Fund and Macquarie near to finalizing a deal to purchase Prior to his time as the head of 2011 and 2013. Accor and its joint - has filed for an IPO on the New Morgan Stanley’s holdings of Japan retail and consumer investment partner in India, InterGlobe, will York Stock Exchange, planning to CMBs, with a face value of around banking at DB, Killingback was own 32% of the fund, according to raise nearly $118 million. JPY100 billion ($1.14 billion). reportedly an MD there for its the statement. According to Ambow, the IPO Should this deal materialize, it Australia business. proceeds will be used to grow its will be the first-ever investment Actis to buy business organically and through for the firm in Japan. The collateral Carlyle agrees $200 acquisition. Ambow already has a of Morgan Stanley’s real estate Halonix’s general presence in 30 out of 31 Chinese assets is believed to be around 30 million for China lighting unit provinces. properties in Tokyo. Whatever the rubber business Goldman Sachs and JPMorgan total value, though, the fund may Emerging markets-focused PE firm are among the managers of the pay considerably less, industry US buyout firmCarlyle Group Actis Capital is to fully acquire IPO. Ambow also plans to develop sources said. This will be the has agreed on a $200 million joint the loss-making general lighting digital learning initiatives, having second large-scale move for the investment with US tyre major business of Indian halogen bulb already signed an agreement with US fund in the realty space after Goodyear Tire & Rubber Company and lamp manufacturer Halonix, a McGraw-Hill. its reported plan to take more and Hixih Rubber Industry Group to company in which it currently holds support their China rubber JV, the a 66% controlling stake. Shandong Aneng Conveyor Belt & Following the acquisition, Rubber Co. Halonix will operate as an The new investment will help automotive lighting firm. According Shandong Aneng build out its to reports, the deal sees Halonix capabilities in the development first jettison its general lighting of high-pressure rubber pipelines, business into its subsidiary Halonix with a pipeline production facilitiy Technologies before selling its expected to start operation in shares to Actis. Reports add that early 2011. The market for rubber 52% of Halonix’s revenue for pipelines in China reportedly stands the FY2008-09 is from its non- at around RMB10 billion ($1.47 automotive business. billion), increasing more than 10% Actis took its controlling stake in each year. Halonix, previously called Phoenix Carlyle and its JV partners Lamps, in 2007, prompting a established Shandong Aneng in 2007 management reorganization that with an initial investment of RMB300 has resulted in increased worldwide million ($44.2 million). The company business activity, according to the claims to be the world’s largest company. Ambow schools in China manufacturer of conveyer belts.

Number 28 | Volume 23 | July 27 2010 | avcj.com  News

CHAMP seeks Khazanah wins Parkway in London, and had previously buyers for Malaysian SWF Khazanah Nasional has reportedly won the battle with worked at Virgin, where he helped Fortis Healthcare for control of Singapore hospital asset Parkway Holdings, to facilitate the sale of the ISP Healthcare after the latter opted to sell its entire 25.37% stake to Khazanah, as the SWF Virgin Net to NTL Incorporated. At Australia launched a $2.56 billion general offer for the entire business. HSBC, he helped the bank make This succeeds Khazanah’s earlier partial offer for just over 50% of the its $10.64 million investment into In the latest Australian healthcare business. The Khazanah offer for all the shares in Parkway it does not Avitel Post Studioz Ltd. through its sector deal, local PE firm CHAMP already own values the company at $3.3 billion. Fortis said that it had HSBC Asian Ventures Fund 3 Ltd, Private Equity is reportedly looking decided to accept Khazanah’s and later aided HSBC in raising $15 to sell Healthcare Australia, the offer on economic grounds, and million in growth funding for the country’s largest nursing, homecare would use the profit on its period firm from its Asian Ventures Fund 3 and medical specialist placement of ownership since buying its stake and its existing shareholders Intel company, worth an estimated $265 in March from TPG Capital to seek Capital and International Finance million. opportunities elsewhere. Deutsche Corporation. According to reports, Bank and CIMB advised Khazanah. prospective bidders were notified India’s of the process last week and initial bids are expected as early as next firm, according to reports. CVCI professional Osuke Honda to seeks PE month. made 2.9x its investment, which it partner. Movie theater chain Cinemax India CHAMP Private Equity and its has held for five years. Ltd. is hunting for a private equity predecessor have been making Following its initial 2005 Evolvence launches partner to help it raise INR150 private equity investments since investment, CVCI boosted its crore ($32.1 million) to expand its 1987. According to Healthcare affiliation with JBF Industries second India f-o-f business, according to local reports. Australia, both the A$500 million through an investment into the Evolvence Capital, the Dubai- Mumbai-based Cinemax is ($438.8 million) CHAMP I Fund, company’s subsidiary in Singapore. headquartered MENA and India potentially looking to double raised in 2000, and the A$950 As per a recent agreement, JBF will investment group, is launching its its business operations over the million ($833.7) CHAMP II Fund, buy two-thirds of CVCI’s holdings in second fund of funds and third next two to three years, by both raised in 2005, are investors in that entity. India fund, the Evolvence India expanding the number of screens it Healthcare Australia. IL&FS Investment Managers Fund II, targeting $400 million. manages and its theater locations, The news comes the same was also a former investor in JBF The new vehicle will make fund reports note. The company’s total month that the Carlyle Group and Industries. investments, direct investments and income in FY2007-08 was INR106.28 TPG Capital acquired Australian co-investments in India, pursuing an crore ($22.8 million), as compared private hospitals and pathology DCM raises $500 overall mid-market to INR95.74 crore ($20.5 million) services operator Healthscope Ltd. thesis. The preceding Evolvence the previous year. It is currently with a $1.73 billion all-cash offer that million for 6th India Fund I closed in mid-2007 at 68% owned by real estate group was unanimously recommended by fund, launches RMB $250 million, and is now invested Kanakia, which will reportedly retain Healthscope’s board. That deal has in ten funds plus eight other control of the company following been touted as Australia’s largest vehicle, promotes investments, with Evolvence India Cinemax’s fundraising exercise. private equity investment since 2007. Honda in Japan Life Sciences Fund closing in 2008. Reports cite sources who suggest that the funds may be injected CVCI offloads 14.3% DCM, the Silicon Valley- HSBC India’s PE through structured private equity headquartered VC firm, has raised transactions worth $30-40 million via stake in India’s JBF $400 million for DCM Fund VI, which head resigns - convertible instruments. Cinemax is Industries focuses on investing in early-stage reports being advised by Enam Securities. technology companies in the US, Citigroup Venture Capital China and Japan. HSBC India’s Head of Principal IDG to boost International (CVCI) has sold a This is slightly smaller than its Investments and Private Equity 14.3% stake in India’s JBF Industries fifth fund, which raised $505 million Gul Mukhey has departed his role Vietnam exposure for INR120 crore ($25.4 million) on in 2005. In addition, the venture after two and a half years at the through two new the Bombay Stock Exchange, with firm has also launched its first RMB- bank, a move that comes as HSBC Reliance Capital Trustee Co. in turn denominated fund with a target is considering spinning out of its funds picking up 2.55 million shares for a size of RMB200 million ($30 million). private equity units - including 4.1% stake in the company. Target sectors for investments, HSBC Private Equity Asia and HSBC CVCI offloaded 8.9 million shares including cleantech, digital media Asian Ventures - through a series of in the company, which makes and internet areas such as content, MBOs. polyester chips and yarn. In all, the ecommerce, mobile and cloud Local media report that Mukhey PE unit has exited approximately computing. With expected further filed his resignation papers last 75% of its full stake in the Mumbai- activity in its offices in Menlo Park, week. There is no news on his next based company since March, when Beijing and Tokyo, DCM has also move. He reportedly joined the The International Data Group (IDG) it held a nearly 21% stake in the promoted Tokyo-based investment bank in 2008 from ING Barings is reportedly set to launch two VC

 avcj.com | July 27 2010 | Volume 23 | Number 28 News

funds in Vietnam in the next two BofA secondaries may go to Asia reports, Sports Station may raise years, with a total capital of $400 Bank of America Corp. is seeking to sell up to $1.2 billion of secondary capital through the exit of the million, targeting chiefly the IT positions in Warburg Pincus funds, with the China Investment Corporation existing PE players, or through a field. (CIC) cited as one of the most likely buyers, according to reports. fundraising exercise that could The two funds - one to launch CIC, a Chinese SWF, could be in line to pick up some $600 million of the raise $10 million in a tranche that in 2011 with a reported total BofA portfolio, with leading secondaries house Lexington Partners named would be allocated to expansion capital of $150 million and the as another probable buyer for a similar tranche. Warburg Pincus Private Equity opportunities. However, Sports next to launch in 2012 with capital Funds IX and X, both recent multi-billion-dollar Station is considering offloading its of $250 million - will join IDG’s buyout vehicles, are thought to be the sources majority stake for the appropriate existing fund in the market, IDG for the assets. investor, according to reports, which Venture Vietnam. According to BofA is trying to reduce its exposure to was prompted following dead-end reports, that fund launched in private equity through a series of secondary talks surrounding an IPO. 2004 and had initial capital of sales, including a $1.9 billion sale to AXA Private Halcyon has reportedly invested $8 $100 million, which has been Equity earlier this year - one of the biggest million in the company through shares invested in private firms within secondaries transactions to date. held through a mix of equity and the TMT sector. convertibles. Tano Capital’s investment The 2011 fund is expected in Sports Station is unknown. to focus on newly-launched KLM Capital Group, has agreed Starr invests companies, while the 2012 fund to be acquired by NASDAQ-listed China’s Top Grade will focus on longer-established Atheros Communications Inc. in a companies in the tech sector, as deal valued at $72 million in cash. Healthcare well as areas such as healthcare and Opulan specializes in Starr International Company, a retail. technologies for passive optical privately held global financial services Sports Station networking and broadband access group, has made a $40 million JAFCO invests aggregation, regarded as key investment in Top Grade Healthcare development areas for fiber-to- Ltd., a provider of diagnostic TPG encounters Singapore’s the-home broadband services. imaging equipment and hospital hurdle in Vishal Consilium Investors in Opulan may receive management services in China. additional revenue from the sale The capital injection was made acquisition VC-focused JAFCO Asia has subject to the attainment of earn- through Starr’s private equity fund Months after news surfaced that raised an undisclosed amount in out objectives during a 12-month unit. The stake size Starr acquired TPG Capital was set to link with Series A funding for Singapore- period following the closing date. was not disclosed. Top Grade claims distressed Indian superstore chain based Consilium Software, a Opulan has facilities in Beijing and to own proprietary technology to owner Vishal Retail, domestic retail communications solutions firm with Shanghai, and claims around 111 develop and manufacture the world’s brand Future Group, headed by operations in India, Southeast Asia, employees. most advanced PET-MR equipment. prominent entrepreneur Kishore Taiwan and Canada. At the signing ceremony, Chairman Biyani, has reportedly made an offer According to Consilium, the Sequoia puts best and CEO of CV Starr and Company for the brand which could foil TPG’s funding will be used to expand its IP Maurice Greenberg , the former strategy. creation and product development foot forward with CEO of American Insurance Group, In March, TPG got the green light and expand its brand in its OkayBuy represented Starr International, and from Vishal, which sought to raise operation markets. Consilium was expressed his firm’s commitment to funds to slash its accrued IND7.35 launched two and a half years ago Sequoia Capital has participated China’s developing healthcare industry. billion ($158.7 million) debt. Last and claims customers in more than in the second round of funding for month, reports stated that Vishal, 30 countries. OkayBuy, an online shoes retailer in Tano, Halcyon may which vends clothing, textiles, JAFCO Asia maintains a focus China, with other two unidentified accessories and FMCG products on technology enterprises. It is investors. exit Sports Station through 171 retail stores, was close based in Singapore with operations The investment size was to investors to signing with PE firms, but Vishal in Shanghai, Beijing, Hong Kong, undisclosed but Li Shubin, chairman R. C. Agarwal announced Taipei and Seoul, and claims president of OkayBuy, who Indian athletic- and lifestyle-wear that the deal was not an exclusive, approximately $650 million under confirmed the financing earlier, retailer Sports Station, backed by nor a binding MoU for TPG. He further management. said that the capital raised certainly private equity firmsTano Capital did not comment on the deal’s value, exceeds its first-round financing and Halcyon, is considering offering but said that TPG would become a VC-backed Opulan of $10 million. The Sequoia team majority equity to a corporate strategic investor for Vishal. led by Glen Sun, VP of the firm in investor or similar player in an effort Specifics of Future Group’s bid for bought by Atheros China, first made that commitment to raise capital, according to local the company have not been released. Opulan Technologies Corp, a to OkayBuy in October 2009. The reports. According to earlier reports, Vishal has privately held Chinese fabless site sells shoes, men’s and women’s Sports Station, or SSIPL Pvt Ltd, considered a new debt and operating semiconductor company backed clothing and accessories. It has is currently 45%-owned by Tano structure to better help it recover by VC firms including AsiaVest delivery networks in 350 cities Capital and Halcyon, as well as from FY09, when the company lost Partners, Acorn Campus, and across China. other HNI investors. According to IND4.14 billion ($87.8 million).

Number 28 | Volume 23 | July 27 2010 | avcj.com  Cover Story [email protected]

practices. PV Wang, Partner at Adams Street Partners, also sees J-curve mitigation as inextricably linked The dynamics of with how fully funded the secondary position is. “The more fully funded it is, the more effective it is at mitigating the J-curve,” he notes. And the J-curve effect needs to be set in context against other priorities. “iIt is important not to secondaries lose sight of the fact that a secondary investment is a purchase of assets, and if these assets are Once-owned LP positions for Asia Pacific and elsewhere purchased at the wrong price, the short-term J-curve benefits may be overwhelmed by the long-term negative impact on portfolio returns,” The coverage of the state of the Asia Doug Coulter, Head of Private Equity for Asia warns Monte Brem, CEO of StepStone Group. Pacific secondaries market earlier this month Pacific at LGT Capital Partners. For a new investor Also, as Dr. Stephan Schäli, Partner and Head of in AVCJ naturally leads one to consideration of in private equity, affirms Jason Gull, Partner and Private Equity at Partners Group, emphasizes, “it’s how secondaries work, and what they can do Global Head of Secondary Investments at Adams not recommended to build up a program of only for investors in the region – whether for local Street Partners, says “you need a fairly substantial secondaries, because you need to have primaries buyers or sellers, or outsiders seeking to gain allocation to secondaries to help mitigate the as well.” Buyers like CIC looking to jumpstart their exposure to the region. And with Asian SWFs compounding J-curve that results from layering programs with large secondary purchases might such as the China Investment Corporation (CIC) on primary commitment over the first few years.” do well to remember this. already stepping forward as major customers Another factor abating the J-curve is not for secondaries – this week, possibly for up to quite as straightforward. “The other, albeit more Pricing and performance $600 million of Warburg Pincus fund positions cosmetic, factor is the immediate write-up in The entry price, preferably a substantial discount, previously held by Bank of America – it’s worth value that can occur when a secondary purchase is a key performance factor in the final outcome considering what these assets entities can do is made at a discount to reported NAV,” notes of the secondaries investment. And recent for new investors to the asset class, and how Jeffrey Keay, Principal with HarbourVest Partners market circumstances have been unusually well they really are matched to deliver what the in Boston. This underlines that part of the value of favorable to first-time buyers. buyers seek. J-curve mitigation may actually come in justifying “Secondary market discounts in 2009 reached the performance of the private equity program an all-time high of c. 46%, exceeding the tech The J-curve effect before the LP’s investment committee. “In the early bubble peak of 2002,” says Marshall Parke, Secondaries are very often marketed as a J-curve days of investing your money into primary funds, General Partner at Lexington Partners. “This expediter, to reduce the long wait for returns investors tend to be looking at a trending-down in was exacerbated by high levels of leverage, on a primary private equity portfolio. “On a valuation, with the payment of management fees unprecedented market volatility, and urgent standalone basis, secondaries offer compelling and investments valued at cost, which could cause seller liquidity needs.” However, he adds, the risk adjusted returns and early liquidity. As a some issues,” confirms says Lucian Wu, MD and steep discounts resulted in very few actual sales. component of primary vehicles, secondaries Head of Asia at Paul Capital., while Gull cautions As pricing levels slip back up, the benefits of help to mitigate the J-curve, provide vintage that And actual results in J-curve mitigation may secondaries for the J-curve decline. “If pricing is diversification and smooth distributions,” remarks hinge on such incidentals as fund accountancy very high, where you’re paying par, a premium, or even a slight discount, you’re not going to get that immediate impact of the higher IRRs,” Gull warns. Overall appetite for the asset sub-class, however, remains high. “Demand for secondary funds has been strong from investors in 2009 and 2010, and has proved to be one of the few highlights in an otherwise difficult private equity fundraising environment,” Parke says.

Early or late? Purchase and performance of secondaries is perennially linked to their funding stage, whether early/young or late/fully funded. New buyers, such as Asian LPs, proverbially opt for young secondaries, but the consequences for performance are worth remembering. Gull sees this as a tradeoff between IRRs and multiples. For young secondaries, he remarks, “you’re going to have likely lower IRRs relative to a more funded secondaries program, but Early secondaries may mean rolling the dice on GP selection higher multiples and longer hold periods.”

 avcj.com | July 27 2010 | Volume 23 | Number 28 Cover Story [email protected]

But early secondaries are often more about % manager access and portfolio diversification 100 Cumulative Cash Flow than performance. “You are buying a lot Drawdowns 80 into the unfunded part of the fund, which is Distributions more like primary investing, and its outcome 60 depends primarily on the ability of the GP to generate outsized risk-adjusted returns in new 40 investments,” Wu says. 20 Early/young secondaries are also a relatively new portion of the market, and historically, very 0 small, notes Brem. “During the financial crisis, (20) many investors were forced to dramatically change their private equity exposure and seek (40) liquidity from any source, some reasonable (60) and others quite unreasonable. This led to the (80) increased supply of early secondaries. I would 1 2 3 4 5 6 7 8 9 10 not expect that to continue.” Supply is already (100) Year dropping, he adds. As a result, investors may need different skill The effect of the J-curve on returns sets according to whether they opt for early- or Source: EVCA late- stage secondaries. “When you’re buying highly unfunded secondaries, pricing the assets are ambiguous. to build away from their home base and invest doesn’t matter,” Gull asserts. “What really matters The promise of access may even be used to erode internationally, thanks to the dictates of the is the quality of the GP.” the discounts essential for successful secondaries market. “Naturally 80-90% of the assets to be This could actually benefit new entrants to investing. “Sellers of funds managed by highly disposed are non-Asian assets,” observes Schäli. the field. “Non-traditional secondary players sought after GPs often expect secondary buyers to “Anyone serious about building a portfolio would may feel more comfortable pursuing these pay full prices as some form of ‘access premium’,” by definition build a global portfolio.” transactions, as opposed to more funded, Keay says, with the implication that, “as a result of “The secondary market in Asia is still very becoming an LP via a secondary, the buyer will be nascent and a smaller part of the overall market guaranteed a spot in the GP’s future funds. That’s opportunity,” confirms Lexington’s Parke. “Seller “If these assets are not always the case.” expectations have often been unrealistic At least one market player maintains, “There’s resulting in a standoff with buyers reluctant to purchased at the wrong no link whatsoever … GPs are not really pay-up for interests with a higher degree of risk.” price, the short-term seeking relationships with secondary buyers.” What sellers there are in Asia - most of them Not everyone takes such a firm view, but even banks - are concentrated in Japan and Singapore, J-curve benefits may those who do maintain that a secondary can he adds. Furthermore, as Coulter confirms, “the offer some access to a prized GP admit that the majority of LPs are still under-allocated to Asia be overwhelmed by purchase is only the beginning, and that the and would rather increase exposure to the region the long-term negative new LP will have to work hard to cultivate the than divest.” opportunity in order to gain future re-up rights. Asian buyers of secondaries, meanwhile, are impact” – Monte Brem As part of the post-GFC movements in the still relatively few, with CIC and its peers rather industry and GP/LP relations, GPs are often skewing perceptions of the area. The major Korean looking at their relationships much more closely. institutions and SWFs are also participating, traditional, secondary investments that require “The fact that you are able to acquire a secondary with Australia’s Future Fund likewise looking at more intensive company-level due diligence,” position means that the GP wants you in,” Wang opportunities. On the independent fund side, remarks Keay. And Wu confirms, “for late stage says. “Nowadays, GPs are quite actively managing though, the universe of buyers is far smaller. secondaries, you really have to have very strong their secondary transactions. That is a good “I’ve not seen any Asian LPs as competitors skill sets to assess the quality of the assets, as well start, but it also depends on how you work the in the secondary market, other than a couple of as the GP.” relationship with the GP.” Asian-based fund-of-funds that have allocations Schäli in any case says the distinction can be The problem, in fact, is fundamental to the to secondaries,” remarks Gull. And even CIC and overdrawn. “For an investor that starts purely from rationale of secondaries. “You cannot build a the major SWF secondaries buyers, he adds, scratch, all types of secondaries have a merit,” he program just made on secondaries,” Schäli asserts. tend to have limited in-house capabilities, and notes. “If you mix all of them in a good basket, “It’s very important for the managers to recognize to outsource due diligence and other essential that’s probably best for a new investor.” you for a relationship that you also help them functions. “They’ve tended only to look at with their future funds.” situations that are very large, and have large Future access buyout exposure, in managers that they already Many investors in early or unfunded secondaries Asia’s secondary appetite know,” he says. appear to have other priorities than returns in For Asia Pacific LPs then, secondaries can be a “Asian secondaries are a very small, thinly mind. One of the most obvious is access rights to valuable tool - but a poor single - in building traded market. So you have no choice but to look the GP for future fundraisings. Here, the benefits out their private equity exposure. Most will have globally. And you should,” Wang concludes.

Number 28 | Volume 23 | July 27 2010 | avcj.com  Celebrating 5 Years of Investing in Asia

2005 - 2010

Emerald Hill Capital Emerald Hill Capital Partners I, L.P. Partners II, L.P.

US$200,550,000 US$300,000,000

July 2007 July 2010

Hong Kong | USA | www.ehcp.com

This notice appears as a matter of record only and is not a solicitation to buy or an offer to sell securities. deals of the week [email protected] Yellow Pages auction up a gum tree?

Unitas Capital and Ontario LP direct- analysts estimating its value as now NZ$900 investment major Teacher’s Private Capital are million-1 billion ($651.8-724.2 million). reportedly hunting for buyers for New Zealand’s New Zealand Yellow Pages’ balance sheet Yellow Pages Group, having launched a sale is additionally weighed down by the NZ$1.8 process for the estimated $700 million asset billion ($1.32 billion) owed to a 25-member – more than 50% lower than the pair’s $1.57 consortium of lenders lingering from its 2007 billion investment into the company at the acquisition. In April, AVCJ reported that bank height of the bull market in 2007. lenders who provided the leverage for Unitas Sources close to the business say that and the Teachers’ Private Capital’s LBO agreed potential bidders have been notified of the to a standstill on debt repayments until end process, and include both large private equity May. firms – possibly previous biddersCVC Capital To navigate the situation, Yellow Pages hired Partners, Kohlberg Kravis Roberts & Co. UBS to advise on its options for restructuring 14x seen in 2007, but maybe around 8x, which and Pacific Equity Partners – and industry- its finances. Much of the leverage comes in the would still be respectable.” related companies, such as Australian directory form of senior debt, plus mezzanine and PIK In New Zealand, Yellow Pages is still the biggest aggregator Sensis, an arm of the formerly loan tranches. By April, leverage from the deal, brand in its industry, and is additionally coasting government-owned telecommunication giant classed as distressed debt, was already trading in on a heightened profile following a highly Telstra Corp. Both Hong Kong-based Unitas Australasia’s secondary debt market. successful marketing campaign in 2008 that Capital and Teacher’s Private Capital, an arm “Taking a step back and examining the cash garnered global acclaim. The push, called “Yellow of Ontario Teachers Pension Plan, jointly paid flow Yellow Pages is generating, the asset has Tree House,” chronicled one woman’s endeavor NZ$2.165 billion ($1.57 billion) for the asset in elements of being distressed, but if it weren’t to build a restaurant in a tree house by only using 2007 from Telecom New Zealand. However, a for its debt to these lenders, its balance sheet contacts obtained through the Yellow Pages print combination of digitizing media habits as well is still in a good position,” a market source says. and online directory. It is elements like this that are as the recession’s effect on advertising dollars “Now, the multiple of EBITDA or cash flow that still in play in 2010, and could still seduce a myriad have drained Yellow Pages of its top worth, with someone would be willing to pay is not the 13- players to a Yellow Pages auction.

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Pacific, to grow into the world’s fifth-largest market for life products within the next five years. Gung-ho for Kyobo as buyout With the current attractiveness of financial services sector plays for private equity, and precedents such as Carlyle’s highly lucrative exit firms assess stake from China Pacific Life Insurance in December last year, analysts say that Kyobo Life may offer a Potential private equity buyers, Management Corp. (KAMCO) floated the chance to pick up a relatively uncontested asset specificallyAffinity Equity Partners and the Carlyle proposal. That event reportedly derailed an at an attractive price, ahead of future growth. Group, are doing due diligence on a potential approach by Goldman Sachs to acquire the Carlyle and Affinity declined to comment. 24% significant minority stake opportunity in asset, as it dealt with legacy assets from the Kyobo Life Insurance Co., Korea’s third-largest bankruptcy of the Daewoo chaebol in 1999. insurer and second-largest in the corporate However, nothing came of that process. Korea pensions market, according to Korean reports. has accumulated a fair number of ostensibly The stake could be worth up to $697 million. attractive - yet problem - assets periodically The opportunity may arise as a consequence held out to foreign investors, with Samsung Life of local steel-focused conglomerate Posco’s Insurance, which linked with Kohlberg Kravis takeover of trading company Daewoo Roberts & Co. in 2005, being another example. International. Daewoo International holds the The deal may be particularly attractive 24% position in the insurer. Posco has already because Korea has not recently been a major signaled its intention to sell the stake, which focus for regional insurance players, which are was previously a prime target for its main rival concentrating their resources on the highest- in the takeover contest, Lotte Group. Posco profile growth markets as they grapple with has reportedly given the funds its blessing to new post-GFC regulatory limitations on their evaluate a deal. Other strategic contenders could businesses. “India, China and Southeast Asia are include the Hanwha and Samsung chaebol. the three big plays,” one insurance industry source Daewoo International’s Kyobo Life stake was tells AVCJ. Korea, however, is already the world’s previously the subject of a planned auction eighth-largest insurance market and was recently as far back as mid-2003, when the Korea Asset forecast by to Simon Machell, Aviva’s CEO for Asia Bain goes for Mr. China’s ASIMCO

Bain Capital is to become the $400 million when he started ASIMCO. The book to cash out existing investors and make further controlling shareholder of ASIMCO Technologies on his exploits, published in 2004, detailed just expansion globally through organic growth, Ltd., the Beijing-based manufacture of some of the vagaries of the early days of foreign as well as acquiring targets such as the US’s automotive components made famous by the manufacturing penetration into China. Camshaft Specialties Inc. However, changing book ‘Mr. China,’ for $150 million. ASIMCO is the Now established as the largest manufacturer market fortunes have prompted alternative exit leading supplier of components to the diesel of engine components for commercial and strategies. KPMG pointed out that many auto engine market in China heavy industrial vehicles in China, ASIMCO sector plays now are confronting uncompetitive The sellers are an investor consortium cost structures and tighter access to credit, and comprising 30 individual shareholders, including as a result, many distressed assets are potentially Key Capital Partners, the PE arm of Cleveland- up for sale. based financial services firm KeyCorp, the private AVCJ sources also indicated that a secondary equity arm of American International Group, auction of the ASIMCO position had been and the International Finance Corporation under way for some time. However, concerns (IFC), which collectively made a $100 million over the asset and market conditions had investment in ASIMCO when the company led to considerable delays and extended due restructured its operations in 2004. Sources said Asimco components in a car and truck diligence, with Bain finally emerging as the that the deal includes equity and the assumption acquirer. of approximately $10 million in debt. The also supplies parts to global makers such Last year, ASIMCO invited new CEO Gary Riley agreement was said to have been finalized in as Cummins, PSA, Volkswagon, Haldex and to replace Perkowski to take further steps to June, but is still up to regulatory approval. Caterpillar. The company currently has an enlarge its business. Perkowski still remains one Since its foundation by former US banker extensive manufacturing base of 13 facilities of the investors in ASIMCO, as well as running Jack Perkowski in 1994, ASIMCO has expanded and 52 sales offices in China, with regional his own business consulting firm, JPH Holdings its operations to become one of the largest offices in the US, Europe and Japan. Ltd. Riley said earlier that the company will seek independent auto components manufacturers ASIMCO originally expected to go for an IPO organic growth driven by improving operations in China. Perkowski was believed to raise about by 2008, with the resulting capital earmarked over the next few years, not through M&A.

Number 28 | Volume 23 | July 27 2010 | avcj.com 13 Which GPs will forge ahead during the next cycle? Talk to us. Before you invest.

Private Equity, real Estate and infrastructure advisor

Zurich · London · honG KonG · WWW.scmaG.com FundraIsing news [email protected] Greene’s Diamond Dragon takes flight

Regional placement veteran Edward alliance for worldwide execution with agent centers on a relatively small number Greene is launching Diamond Dragon Advisors, Threadmark LLP in Europe and Madison Williams of key clients, taken a few at a time, in strictly Asia’s first locally headquartered private equity & Co. in North America, both founded by former non-competitive practice areas. In the case of placement agent and advisory firm with a global CP Eaton personnel. Greene will lead the firm as RMB and USD funds in areas such as growth reach, with offices in Hong Kong and Shanghai, Chairman from Hong Kong, serving both Asian equity, this extends across currencies. “Whether and soon to open in Sydney. and Western GPs, and developing deep local that’s a USD fund or RMB, we will consider that Diamond Dragon, which currently has eight relationships with the emerging as the same space,” Greene tells staff, has been preparing for launch for some Asian LPs. AVCJ. time but now has passed its initial hurdles with Dennis Montecillo, formerly As well as pure placement, registration by Hong Kong’s SFC. “I wanted to with Morgan Stanley and the Greene adds, that the firm create the first Asian-based GP advisory and family office of the Ayala Group will “have an advisory line of placement firm,” Greene tellsAVCJ of his plans for in the Philippines, has also business where we help GPs get the company. joined as CEO and Senior MD. ready for the global marketplace, Dedicated local placement agents have Linda Lee, formerly a founding but we don’t necessarily grown up in Australia, which is home to firms partner of Kathy Xu at Capital represent them.” such as Principle Advisory Services, and a few Today, assumes the role of “We’re building our business global firms, such as Probitas, have additionally CFO, while Joan Tan, formerly model to be fully aligned with established offices in Asia. Greene created with Shanghainese PE-focused the demands of Asia,” Greene Diamond Dragon partly drawing on his corporate advisory firm New Ed Greene concludes, adding that he experience after setting up CP Eaton’s Shanghai Access Capital, as well as JPMorgan and Paine welcomes the advent of other global placement division. However, as Greene emphasizes, “there is Webber, becomes MD in Shanghai. Alex Edwards, specialists in the region to help build the no Asian-based placement firm that has a global a former colleague at CP Eaton, will head up the discipline and the industry. “Emerging markets reach … there was a very real void.” firm’s Sydney office as MD. are where the growth is, and Asia is the driving Diamond Dragon will lever off a global Diamond Dragon’s thesis as a placement force in risk/return opportunity.””

the $1.05 billion Navis Asia Fund V, which had f-o-fs comprised more than one-third of its LP Navis VI nears $1.2 base. AVCJ sources provided a range of possible reasons for this shift, from a wish to boost overall returns to underlying LPs in the fund by cutting billion close back f-o-f fees, to a desire to achieve a more tractable LP base. Navis has also recently seen substantial deal In the latest sign of fundraising billion in December 2008 after the onset of the flow, including its $50 million commitment to the resurgence - at least for key Asia-focused GFC, but will now close well above its revised UK expansion of Thai duck husbandry investee funds - leading Kuala Lumpur-headquartered objective. Bangkok Ranch in April, and the sale of Malaysian regional investor Navis Capital Partners is The shift in Asia Pacific’s fundraising specialist rubber business Linatex to the UK’s Weir reportedly approaching a $1.2 billion final environment can be seen in this September Group in June at $200 million, for a reputed 50% 2008-vintage fund’s second close in August IRR. 2009 at $400.9 million, according to AVCJ data As a firm,AVCJ sources say Navis has long – coming during Navis VI’s raising. Navis VI has been well-liked by LPs for its systematic value been able to attract roughly double the amount creation approach, levering on the founding of capital over the 2009-10 period that it did over principals’ shared background at the Boston 2008-09. Consulting Group, as well as its preference for Campbell Lutyens & Co., which considers control positions and low-to-zero leverage in Navis among its most significant Asian clients, has growth market investments. LPs, though, are also been acting as placement agent for the fundraise. known to have watched with some concern for Known LPs in the fund include the Employees signs of how well this approach would scale, as Navis’s core founding team from its website - Retirement System of Texas, Princess Private Equity the firm targeted larger fund sizes and expanded Rodney Muse, Nicholas Bloy, and Richard Foyston Holdings and Partners Group, which also invested into new markets such as Australia and India. The in Fund V. imminent close of Navis VI suggests that the firm close on its latest vehicle, Navis Asia Fund Navis VI is known to have a much lower has been able to show the numbers to put paid VI. Originally launched in early 2008 at $1.75 component of fund-of-funds investors in its to those fears. billion, the fund target was later trimmed to $1 capital base, at just over 10%, compared to Navis declined to comment to AVCJ.

Number 28 | Volume 23 | July 27 2010 | avcj.com 15 www.avcjforum.com

23rd Annual AVCJ Forum: Asia’s Private Equity Week 2010 9 – 12 November 2010 | Four Seasons Hotel, Hong Kong Global perspective, local opportunities Asia’s most important gathering of Asia-focused private equity professionals and LPs returns Keynote Addresses

David Rubenstein Howard Marks Steve Barnes Guy Hands Glenn Hutchins Co-Founder & Chairman Managing Director Chairman & CIo Co-Founder & Managing Director oaKTRee BaIN CapITal TeRRa FIRMa CapITal Co-Chief executive THe CaRlyle GRoup paRTNeRS SIlveR laKe paRTNeRS Schedule of 2010 events AVCJ Forum 2009 Highlights: • annual awards Dinner | Tuesday, November 9 • 1000 participants from 33 countries representing • pe leader Summit | Wednesday, November 10 more than 400 companies • lp Summit | Wednesday, November 10 • Over 100 institutional investors / LPs from nearly • Institutional Investor Roundtable luncheon | 20 countries representing nearly half a trillion Wednesday, November 10 dollars under management. • Investment Summit | Thursday & Friday, November 11 & 12 • 100+ speakers from leading global and regional firms

Lead Sponsors Asia Series Sponsor

Investment Summit Sponsors

,

Private Equity

Legal Sponsors PE Leaders’ Summit Sponsor

Awards Sponsor Exhibitors Organised by

Contact Anil Nathani on (852) 3411 4938 / [email protected] for any enquiries. INDUSTRY Q&A | interview [email protected] Industry Q&A: Hu Zhanghong, CEO, CCB International [AVCJ spoke to Hu Zhanghong, CEO of CCB International, the asset management and private equity arm of the major PRC banking group, who discussed opportunities in Greater China and the role of RMB funds]

Q: What does CCBI currently Q: How does CCB International developing pace if you compare opportunities for first-class see as the major areas of synchronize operations it with credit PE. Going forward, healthcare. opportunity for private equity between its different divisions, investors would increasingly Second, China is investment in Greater China? such as private equity and want to enhance their returns, undergoing rapid urbanization, A: CCBI divides sectors into direct investment, and so this is the right direction for and is expected to reach a traditional sectors and newly its other arms, like asset them to go to enhance their level of 65% from the current emerging strategic sectors. management? development. 46% urbanization rate – this Our emerging strategic sectors A: First, we all operate under momentum of growth creates category includes healthcare; the same legal framework. Q: Can you comment on the a lot of spending from culture and media; internet; Everything adheres to strict evolution of the RMB fund this newly created urban alternative energy; traditional compliance. And we have a market? population group. They will energy; and new materials. For whole value chain of pre-IPO, A: First-class the traditional sectors, we cover IPO and post-IPO transactions. healthcare is retail and some manufacturing But the main purpose of these something that sectors, such as construction. is ultimately to enhance the is going to be Altogether we cover 17 sectors. value of the companies being the momentum targeted, so the whole value for the growth Q: How does CCBI use its bank chain and the various divisions of Chinese RMB origins and network to would work together for this funds. Looking support its private equity purpose. We also have a big at the domestic strategy team of professionals which growth A: CCB is the third-largest [bank] understand the Chinese practice projections globally in terms of market and Chinese corporation culture growing so capitalization and assets. With well. quickly in 2008, this, it has a very rich client and the GDP network and maintains close Q: Does CCB International see per capita is relationships with its clients. That a major role in future for now more is one of the main advantages. specialized sector-focused than $3,000. It Secondly, it gets first-hand funds and investments in is possible for people to get not only spend on housing, information from the clients, Greater China? better healthcare and living cars and other necessities to so that helps with our risk- A: It is the right time for the standards. support their new city lifestyle management capability. Lastly, firm to develop sector funds. The aging population - they will also increasingly with the large and diverse Right now, the market size is of China shows that we are seek entertainment and social clientele which CCB has, we around RMB200 billion ($29.5 going to have 200 million networking media, and get are able to value-add through billion), but if you compare people by 2018 who are themselves up-to-date through the introduction of strategic this with public equities, you’re classed as old-aged. So along the media. Hence I expect, partners whom the bank sees looking at RMB50 trillion ($7.4 with the growth of the aging going forward, the RMB fund as creditworthy partners for the trillion). The PE market cap is population in China, that market to develop towards the creation of further synergies. RMB200 million. This is at a fast- is going to create a lot of media and culture sector.

Number 28 | Volume 23 | July 27 2010 | avcj.com 17 Infrastructure Finance & Development Asia India Summit 2010

Setting Priorities and Mapping Goals for India’s Second Decade of Infrastructure Shangri-La’s Eros Hotel, New Delhi | 26 – 27 August 2010

Our confirmed speakers include:

Keynote Senior Industry Professionals

Montek Singh Sanjay Aggarwal Deepak Amitabh Varun Bajpai Rangarajan Balajee Ranajit Banerjee Michael Barrow Gautam Bhandari Alwyn Keith Ahluwalia CEO Director - Finance CEO COO Director-Project & Director, Managing Bowden Deputy Chairman SPICEJET POWER TRADING SBI MACQUARIE AURO MIRA Export Finance Infrastructure Finance Director, Head CEO THE PLANNING CORPORATION INFRASTRUCTURE ENERGY, CHENNAI STANDARD Division 1, PSOD of Infrastructure ESSAR PROJECTS COMMISSION, MANAGEMENT CHARTERED BANK ASIAN Investment BUSINESS GROUP GOVERNMENT OF PRIVATE LIMITED DEVELOPMENT MORGAN STANLEY INDIA BANK

Amulya Charan Tejpreet Chopra Shubhashis Archana Hingorani Ajit Krishnan Madan K Menon Luis Miranda Rajiv Ranjan Mishra Keshav Misra Managing Director President & CEO Gangopadhyay CEO & Executive Partner – Infrastructure, Country Head, President & CEO Managing Director Head of Capital TATA POWER BHARAT LIGHT & Research Director Director Industrial and India IDFC PRIVATE CLP INDIA Allocation & TRADING CO LTD POWER INDIA IL&FS INVESTMENT Consumer THE ROYAL BANK EQUITY Investment DEVELOPMENT MANAGERS Tax & Regulatory OF SCOTLAND Management FOUNDATION Services BARING PRIVATE ERNST & YOUNG EQUITY PARTNERS - INDIA INDIA plus Register now Krishna Kumar, Co-CEO, STANDARD CHARTERED IL&FS ASIA INFRASTRUCTURE GROWTH FUND (SCI ASIA) Please contact:

Nanda Kumar, Head of Infrastructure Ratings, India, Anil Nathani FITCH RATINGS T: +852 3411 4938 Pronab Sen, Principal Adviser, THE PLANNING E: anil.nathani@ Goutham Reddy MK Sinha Prakash Tulsiani Nandita Nagpal COMMISSION, GOVERNMENT OF INDIA incisivemedia.com Director President & CEO Managing Director Vohra - STRATEGIC IDFC PROJECT APM TERMINALS Senior Consultant Naresh Takkar, Managing Director & CEO, ICRA LIMITED PLANNING EQUITY CO LTD PIPAVAV ASIAN www.ifdaindia.com RAMKY GROUP DEVELOPMENT BANK

Hosted by Co-sponsors Organised in cooperation with

International newspaper and news website Supporting organisations Knowledge partner Industry Q&A [email protected] Limited Partner Q&A: International Finance Corporation [AVCJ’s Brian McLeod talks to David Wilton, CIO of the Private Equity and Investment Funds Department at the International Finance Corporation, the private finance arm of the World Bank]

Q: Where does IFC’s private equity thrust fit average they generate about 15,000 new 40 funds, totaling $900 million. We did not into the organization’s bigger picture? jobs per fund, and we’ve earned 29% net manage to close them all as some were still a A: Seventy-five percent of IFC’s business is IRR from them. distance from first close in a very tough fund- lending; 25% is equity. And in that segment, raising environment, so we have taken about we invest a little more than a fifth through Q: How long have you been at this, and what ten forward into this year. funds. So it’s a smallish part. But we’re impact has the GFC had on your efforts? convinced that private equity, when it’s A: We started to back private equity funds from Q: Where are your investment funds sourced? done right with the right GPs, can really help the early 1990s. But by 1999 it was obvious A: It’s all our own balance sheet money, from developing companies get up to speed that we had a performance problem: i.e. the the original funding granted to us when IFC quickly, which creates not only more jobs, but private equity segment was about one-eighth was set up in 1956, plus retained earnings. We better quality jobs. of IFC’s balance sheet, with returns appreciably make fairly healthy profits every year. We largely back first-time or emerging sub-par compared to IFC’s direct investments. managers. Once they are successful and can So we created a special department to deal Q: What’s your MO, and how does it relate attract sufficient commercial capital, we pull to the conventional private equity out and go find the next one. community? A: We are essentially an LP, funding what Q: Typically, what size are your investments? we hope are going to be commercially And what about the returns? successful private equity groups. So we A: It depends on the space the fund is in. At only back funds we think are going to be the small end you’ve got funds that focus able to demonstrate proof of concept in on small business. The returns are likewise an area where we’re looking to establish a modest, maybe 8-10% net, which is clearly commercially viable industry. not something that commercial investors That said, however, IFC in its direct are going to pile into. These funds are quite investing is quite different than the private small, say $30-50 million, and we might equity funds that we back. In fact, between invest $5-10 million. We get involved with the two portfolios, there’s only about a 3-4% them because they can get us right out overlap in the underlying companies. That’s into post-conflict countries, the frontier of because, for private equity, you need to either emerging markets. have control or a shareholders’ agreement Then there’s the SME space, a totally IFC private equity performance that gives you significant influence and different model. These funds are bigger, Source: IFC control-like rights, so you can drive the maybe $70-200 million, in which we may company. invest $10-20 million. With good execution, with funds only, consolidating them from IFC, by its constitution, is forbidden to returns can be in the mid-to-high teens, say all over the organization, to clean up the take a management role in any investee 15%. portfolio and try to determine whether we company. We can have a board seat. We Further up the chain are the mid-cap belonged in this business. can act as a sounding board. And so we’re a growth funds, which range from about From 2000-06, the funds department was very good partner for a company that wants $100 million to $500-700 million. In these ring-fenced. We were given $200-250 million an outside interest to provide capital and we’d contribute $10-50 million. These p.a. to go and invest and see if we could do advice – we have a lot of global industry funds are very attractive commercially, and better, achieve proof of concept. We did about knowledge, for example – but at the same likewise create a lot of jobs. The focal points 8 to 10 funds p.a. time a company that really wants to direct are the larger end of SMEs (maybe 40% at Because of the J-curve in private equity, themselves. the time of acquisition), with the rest being it took until the end of 2005-06 to see that mid-caps. the strategy was working. But at that stage, Q: If you could crystallize what your Our experience is that these are very it was expanded to about 20 funds p.a., experience has taught you, what would it fast-growing companies, with top-line totaling about $400 million, plus or minus. be? revenue growth of 20-70% p.a., and they And this last year, in a counter-cyclical A: That emerging market risks are grossly get scaled to provide a decent exit. On, response to the global crisis, we aimed at overstated.

Number 28 | Volume 23 | July 27 2010 | avcj.com 19 Asia has over $233 billion in funds under management

* as of September 30, 2009. Source: AVCJ

Just where and how are these funds distributed? Read all feature information on key companies and transactions. about it in AVCJ Private Equity and Venture Capital Report, the Offering global perspective alongside local opportunities, annual series of regional reports by the leading source of the regional reports include Australasia, China, India, information on Asian private equity, venture capital and M&A. Japan & Korea, and Southeast Asia.

Reviewing the year’s activity in the industry, the regional For more information or to order, call Sally Yip at +(852) reports are filled with up-to-date data and intelligence 3411 4921 or email AVCJsubscriptions@incisivemedia. on fundraising, investments, exits and M&A. They also com.

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