AVCJ Private equity & Venture Forum 2012 AVCJ Private equity & Venture Forum 2012

europe 11 october 2012 13 - 16 november 2012 avcjeurope.com avcjforum.com ASIAN JOURNAL

Asia’s Private Equity News Source avcj.com September 18 2012 Volume 25 Number 35

Editor’s ViEwpoint Optimism over Japan’s opportunities returns despite low GDP PRIVATE EQUITY ASIA growth Page 3

nEws Actis, Affi nity, Bain, Blackstone, Blue Sky, Carlyle, CITIC Private Equity, CVC, CVCI, IndoUS M&A ASIA Ventures, L Capital, Longreach, MBK, Motilal Oswal, PAG, Quay Partners, RBS, Temasek Page 4

Fund oF thE wEEk MGPA announces fi rst close of $652m Asia real estate fund Page 14 The missing link aVCJ rEsEarCh Are renminbi fund-of-funds a realistic solution to ’s LP shortage? Page 7 Data f ile Page 15

FoCus dEal oF thE wEEk

Eff ective pitches The fi tness factor Communication key for Japan’s mid-cap Page 11 NBC Capital sells Australian health club Page 14 Private Equity & Venture Forum India 2012 6-7 December • Taj Lands End, 13th Annual

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avcjindia.com Editor’s Viewpoint [email protected] ASIAN VENTURE CAPITAL JOURNAL

Managing Editor Tim Burroughs (852) 3411 4909 Senior Editor Brian McLeod (1) 604 215 1416 PRIVATEAssociate EQUITY EditorASIA Susannah Birkwood (852) 3411 4908 Buyout firms Staff Writer Alvina Yuen (852) 3411 4907 Creative Director Dicky Tang M&A ASIA Designers Catherine Chau, Edith Leung, optimistic about Mansfield Hor, Tony Chow Senior Research Manager Helen Lee Research Manager Alfred Lam Research Associates Kaho Mak, Jason Chong Japan again Circulation Manager Sally Yip Circulation Administrator Prudence Lau A couple of weeks ago, I wrote about been driven in part by a greater sense of urgency Senior Manager, Delegate Sales the signs of positive change in the Japanese among the big corporations. As for smaller Anil Nathani private equity industry and that we can be Japanese companies, especially those with an Senior Marketing Manager optimistic again about Japan (See page 3 of enterprise value of $500 million to $2 billion, a Stacey Cross the September 4th edition of AVCJ). This view major selling point would be helping them with Director, Business Development has more or less been shared by many of our their China strategy, as their ability to expand in Darryl Mag speakers at our recently concluded AVCJ Private China is going to be critical part of their future. Manager, Business Development Equity & Venture Forum - Japan, especially those The recent political tension between the two Samuel Lau in the buyout space. countries over the Diaoyu/Senkaku Islands may Sales Coordinator In the opening keynote panel chaired by dampen the -term interest. Debbie Koo HarbourVest’s Sebastiaan Van Den Berg, the Credit needs to be given to the private Conference Managers Jonathon Cohen, Zachary Reff, Sarah Doyle Japan heads of some of the largest private equity equity firms that are targeting growth segments Conference Administrator firms in the world were saying that the scope in an economy that is flat-lining. Bain Capital, Amelie Poon for private equity in Japan is widening the most active firm in Japan (in terms of Conference Coordinator Fiona Keung, Jovial Chung due to falling public market valuations and clear volume), has recently invested in two such Publisher & General Manager opportunities for value-add within portfolio opportunities:Skylark, the restaurant chain it Allen Lee companies. bought last year from Nomura Principal Finance Managing Director The panel, which comprised of speakers from and Mitsui for $2.1 billion plus debt, and Jupiter Jonathon Whiteley Bain, KKR, PAG and TPG, argued that pricing for Shop Channel, Japan’s number one TV shopping Chairman Emeritus Japanese companies is much more attractive channel. Dan Schwartz than it has been historically. It is worth noting According to Shintaro Hori, chairman at Bain that while US and Chinese companies are trading Capital Japan, the former was attractive because at similar levels in terms of EBITDA and price-to- of its good price-line strategies that ensure Incisive Media book, the Nikkei 225 Index is trading 20% lower the restaurant chain caters to most consumer 20th Floor, at 6x EBITDA. On a relative basis therefore, Japan segments. As for the latter, their core customers, Tower 2, Admiralty Centre 18 Harcourt Road, is cheap right now. There are more than 800 women aged 40 years and over are spending Admiralty, Hong Kong T. (852) 3411-4900 companies valued between $150 million and JPY10,000 ($127) a week. With an expanding F. (852) 3411-4999 $700 million, and 60% of them are trading at less population of savings-rich females, the potential E. [email protected] URL. avcj.com than 0.8x book value. for growth is almost certainly assured. More importantly, Japan is one of few markets Finally, as for returns, TPG’s Jun Tsusaka Representative Office Room 1805, Building 10, where control-oriented buyout deals are possible. dispelled common perceptions of Japan as a low- Jianwai SOHO, 39 East 3rd-Ring Road, By contrast, in China, Asia’s most active market, return market for private equity. According to Chaoyang District, Beijing 100 022, China almost 90% of deals completed last year was for him, TPG’s Japan return of 2.4x is ahead of India T. (86) 10-5869-6205 F. (86) 10-5869-7461 minority stakes. That number increases to 94% in and Southeast Asia, which both returned 1.8x. E. [email protected] India, while the current hotbed of Southeast Asia So there you go. Buyout firms again are managed 75%. This obviously means that private maximum bullish on Japan. The Publisher reserves all rights herein. Reproduction in whole or equity investors can deliver more value-add in part is permitted only with the written consent of AVCJ Group Limited. through operational improvement. ISSN 1817-1648 Copyright © 2012 Speakers also observed that corporate Japan is more open to the idea of working with private equity partners, although ensuring alignment Allen Lee of interests remains a challenge. The changes, Publisher which have occurred over the last 10 years, have Asian Venture Capital Journal

Number 35 | Volume 25 | September 18 2012 | avcj.com 3 News

Asia Pacific CVC, RBS raise $286m in billion term loan, a $200-300 million bridge-to- Samsonite sell-down bond facility and a $450 million cash bridge. Affinity launches $3.5b CVC and Royal Bank of Scotland (RBS) have CITIC PE backs take-private reportedly sold a combined 153.6 million shares pan-Asia fund in Hong Kong-listed Samsonite International, bid for China’s 3SBio Affinity Equity Partners is reportedly looking to the world’s biggest travel luggage company, CITIC Private Equity is supporting a $331 million raise up to $3.5 million for a new pan-regional for HK$2.22 billion ($286 million). The deal offer for NASDAQ-listed vehicle. The firm – which was founded by former accounted for roughly 10% of the company, with Chinese pharmaceuticals company 3SBio. It is the UBS Asia chairman KY Tang – has given MVision 65% of the shares sold by CVC and the remaining latest in a string of attempted take-private deals the mandate as placement agent. The Asia- 35% by RBS. for US-traded Chinese firms that are perceived to focused private equity firm has already begun be undervalued by the public market. marketing the fund and has arranged a meeting with LPs for later this month North Asia Carlyle offers LPs quick exit route from Asia fund Yahoo Japan launches The Carlyle Group has introduced a liquidity VC fund mechanism for its latest Asia buyout fund that Yahoo Japan has joined the corporate venture facilitates the exit of LPs that want to sell their capital club by launching a JPY1 billion ($12.8 positions in the vehicle, industry participants tell million) fund.. It will principally target start-ups AVCJ. The private equity firm has used a similar in the smart phone, internet advertising and mechanism elsewhere in the world, but this is cloud computing spaces. The VC subsidiary - YJ the first time it has been deployed in Asia. The shares were purchased by a small number Capital - will be entirely sponsored by Yahoo’s of global investors through a reverse enquiry. own balance sheet. PAG announces final close The vendors sold at HK$14.50 per share, which represents a 3.3% discount to Friday’s closing MBK targets $2.25b for of $2.4b on Asia fund price. was the sole book- PAG has announced a final close on its debut runner. CVC bought Samsonite in 2007 for $1.7 fund III private equity fund at $2.4 billion. PAG Asia I is billion, including debt, and funded most of the MBK Partners has launched its third buyout fund a pan-regional buyout vehicle with a particular transaction with a loan from RBS. with a target of $2.25 billion, AVCJ has been told. focus on China. It is the largest Asia fund to It is the latest in a string of large-cap pan-regional achieve a final close since Baring Private Equity funds to enter the market, joining the likes of KKR, Asia raised $2.46 billion for its fifth vehicle in growing SMEs across sectors such as food, energy TPG Capital, The Carlyle Group and RRJ Capital. January 2011. and housing. MBK Partners III will follow a similar strategy to its predecessor. Actis appoints two new Quay poaches Reed from directors in Asia Pantheon for US Global buyout firms see Actis has appointed two new directors, Danny Australian private equity fund-of-funds and rich pickings in Japan Koh and Max Lin, who will be based in advisory firm Quay Partners has hired Jeffrey The scope for private equity buyouts in Japan is and Beijing, respectively. Koh will be head of deal Reed from Pantheon Ventures, the UK fund- widening due to falling public market valuations origination for Southeast Asia while Lin will focus of-funds, to help manage its US operations in and clear opportunities for value-add within on China investments. Koh started his career San Francisco. Reed, a secondary investment portfolio companies, according to panelists at in the tax division of PricewaterhouseCoopers specialist, joins Ian Deas, also ex-Pantheon, who the AVCJ Japan Forum. “Pricing is much more (PwC), before moving to its corporate finance has been with Quay Partners since 2010. attractive than it has been historically,” said Jun and then private equity groups. Tsusaka, partner and managing director at TPG Greater China Capital Japan. Australasia Longreach nears $400m Banks invited to finance final close on second fund Blue Sky makes new Focus Media buyout The Longreach Group is nearing a final close executive appointment Banks in Asia are reportedly being approached of around $400 million for its second fund. An Blue Sky Alternative Investments has hired to provide up to $1.7 billion in financing for the announcement is expected within a month, Lachlan McMurdo from Bain & Company as private equity-backed management buyout of market sources told AVCJ. The Japan-focused investment manager of the private equity NASDAQ-listed Focus Media Holding. Citigroup, GP has spent more than two years on the division. He will be responsible for the company’s and DBS Bank have assembled a fundraising trail. It held a first close of $135 existing portfolio, as well as covering rapidly package comprising a term loan of up to $1 million in March 2011.

4 avcj.com | September 18 2012 | Volume 25 | Number 35 News

CVCI achieves 2x return on biopharmaceutical company that focuses on South Asia dermatology, has raised $3.3 million in Series A Chinfon Vietnam exit financing. The round was led by IndoUS Venture Blackstone ups Financial Citi Venture Capital International (CVCI) has Partners, with Aarin Capital and existing investor achieved a return of 2x on its exit from Chinfon Navam Capital also participating. Established in Technologies stake to 6% Vietnam, after holding the company for four years. August 2010, Vyome develops treatments for a has increased its “CVCI has spent six to nine months to search variety of medical conditions including fungal stake in financial services company Financial for an exit until it finally divested the company and bacterial infections. Technologies India to more than 6% through six months ago to a strategic investor,” a source open market transactions. Investing via its entity familiar with the transaction told AVCJ. “The exit Carlyle, Multiples back Blackstone GPV Capital Partners Mauritius VI FII, has been the largest exit in Vietnam so far.” the private equity firm has snapped up an extra Chinfon, which CVCI invested in in 2008, South Indian Bank 1.1% stake or 5,24,054 shares in the company. is one of the largest cement manufacturers in The Carlyle Group and Multiples Alternate Asset Vietnam, with clinker and cement production Management have participated in a qualified Motilal Oswal PE invests in capacity of 3.2 million tons and 4.2 million tons, institutional placement (QIP) for South Indian respectively. Bank, which raised INR4.4 billion ($80 million) Indian realty project from eight investors. The bank launched the Motilal Oswal Private Equity Advisors has teamed allotment program on September 3 and sold up with two real estate firms - Supreme Universal 200 million shares, or a 15% stake, at a price of and the Mirchandani Group – to invest INR600 INR22.13 per share. million ($11 million) in an Indian realty project. The investment, made via the INR2 billion India Carlyle-backed Haier offers Realty Excellence Fund, aims to develop a 16-acre land parcel located at Somatane, in Pune. $705m for Fisher & Paykel Carlyle-backed Haier Group has put in a NZ$869 L Capital Asia in talks to million ($705 million) buyout offer for Fisher & Paykel Appliances (F&P), the New Zealand-based back Kingdom of Dreams kitchen and appliance manufacturer. The Chinese LVMH Group’s private equity investment arm company is willing to pay NZ$1.20 per share in L Capital is reportedly investing around INR2 cash. Haier New Zealand Investment Holding billion ($37 million) in The Great India Nautanki Equity, could raise almost $1 billion. Company, a wholly-owned subsidiary of Haier Company (GINC), which runs the Gurgaon- Group, already owns 20% of F&P. based Kingdom of Dreams, an entertainment PE-backed Max India sells destination designed to play host to live musicals, Temasek, Bain in race for Indian culture, heritage, art and cuisine. The two polypropylene film unit parties have already signed a term sheet. Max India, which is backed by Goldman Sachs, Shriram Transport stake International Financial Corporation (IFC) and Temasek Holdings, Bain Capital and Piramal Creation Investments leads Temasek Holdings, has sold its biaxially oriented Group, a conglomerate run by Ajay Piramal, polypropylene (BOPP) film division to Germany’s are reportedly leading the race to acquire TPG Sonata Finance round Treofan for INR5.4 billion ($97 million). The Capital’s 20% stake in Shriram Transport Finance Sonata Finance, an Indian microfinance divestment allows the Indian company to focus Corp (STFC), one of the leading commercial institution (MFI), has raised INR350 million ($6.4 on its core healthcare and businesses. vehicle lenders in India. The transaction is million) in a Series D financing round led by Max India has sold various units over the years. expected to close next month. TPG is said to have Chicago-based Creation Investments. Promoter been looking to exit STFC since early last year. Anup Kumar Singh and two existing investors Motilal Oswal PE to set up in the company - the Michael and Susan Dell Foundation and local economist real estate fund Southeast Asia Swaminathan Aiyar – also participated in this Motilal Oswal Private Equity is planning to set round. up a real estate fund worth up to INR6 billion Capstone Partners opens ($108 million). The fund will tap institutional office in Asia Goldman, Temasek to part- investors as well as its traditional LP base of high net worth individuals (HNWIs) because new Placement agent Capstone Partners has opened exit Bharti Infratel via IPO alternate investment fund guidelines have raised its maiden Asia office in Singapore. Two senior Goldman Sachs, Temasek and Nomura are among the minimum ticket size for investments to INR10 executives - Alexandre Schmitz and Teena Jilka – the investors planning to offload part of their million from INR2.5 million. were hired to lead the firm’s operations. Schmitz shareholdings in the mobile phone tower unit will be the head of Capstone’s operations in of Bharti Infratel, the Indian telecommunications IndoUS Ventures backs Asia. Prior to the appointment, he served as the infrastructure firm, which has filed for an IPO. investment director at PAI Partners, and was a Bharti Infratel, which is also backed by PE players Vyome Biosciences member of the executive committee at Cobepa, include KKR, India Equity Partners and Axa Private Vyome Biosciences, a Delhi-based and CEO of BeCapital.

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avcj.com Cover Story [email protected] China’s FOF experiment China has started to witness the emergence of renminbi-denominated fund-of-funds, but only a few institutional and individual investors appreciate their investment philosophy

Magic Stone term investment philosophy of such products. denominated fund-of-funds had reached a total is one of the first investment firms in China “Raising renminbi has been a challenge so value of RMB3.3billion. to experiment in the renminbi fund-of-funds far in China, but we do see the need to develop According to market sources, the US-listed market. However, getting things right in China’s our industry with other players,” Jenny Zeng, company first began its private equity business nascent private equity market is never an easy managing partner of Magic Stone, tells AVCJ. by setting up centers in each city to cold-call task. “Building up a fund-of-funds takes you years of individuals with bank balances above a certain Given its management profile, Magic Stone experience and any new players which come level, in a move to match prospective investors - led by a team of Chinese PE veterans including without preparation and patience are not going with GPs. The business model has proved itself as former founding partner of Jade Invest Jenny to be very successful.” very profitable in the last few years, with another Zeng and ex-president of China Venture Capital 6,000-8,000 copy-cat operations having been set and Private Equity Association Frances Huang Nascent market up in and Beijing. - has tried to approach the local fund-of-funds The renminbi fund-of-funds market first started “People were invited to events where GPs space with institutional practices, unlike many to emerge to any great extent in late 2009, when could introduce their funds. After that you had of its local counterparts. It has established a China witnessed ample liquidity and investors to sign a document,” a pan-Asian LP who joined database that houses information from more were impressed by the high returns generated one of these matching events recalls. “Because of than 1,000 GPs, it follows precise due diligence from private equity investments. At that time, a the lack of channels to LPs, these intermediaries and investment processes, and organizes tailor- large number of intermediaries – some of which – who have developed a large network of HNWIs made roundtables to bring together institutional called themselves fund-of-funds – were set – have the bargaining power to charge up to 3% investors and high net worth individuals (HNWIs) up with the primary motive of pairing up rich up front and half of the from GPs. and entrepreneurs, to talk about the changing individuals with the large number of GPs that No one has ever done that.” dynamics in the industry. were flocking into the market. While local structures doe serve as a bridge Its international approach, however, has not Noah Holdings has been a classical example. between retail investors and GPs that are thirsty borne fruit just yet. The private equity player Founded in 2005, the New York-listed company for capital, most of them focus on screening the launched its maiden renminbi-denominated fund-of-funds in January 2009 with a target of RMB1 billion ($158 million). The vehicle – which China's fundraising breakdown by value is yet to count institutional investors as its LPs 1% – is still on the fundraising trail after more than 2% three years, according to a source close with the 5% 9% situation. 12% Buyout Fund It goes without saying that Magic Stone – 8% 32% which also manages US dollar fund-of-funds 24% 2% Jan-Aug Infrastructure Fund Jan-Aug - is not the only recent player to attempt the 2011 42% PE Fund 2012 renminbi market. According to AVCJ Research, Fund among the 80 disclosed renminbi fund-of- 18% VC Fund funds in China, over half of them were raised 45% between 2009 and 2011. However, out of the top 10 vehicles by value, nine of them are government-backed, with the remaining one – Source: AVCJ Research Noah’s Jingzhao Fund – entirely raised private placements by HNWIs. There is no doubt that a maturing renminbi distributes products and private most popular funds without an institutionalized fund-of-funds market will play a positive role equity funds that are originated in China. Its due diligence system. Although some of these in introducing Chinese investors to a more financial services also involve fundraising for GPs, so-called fund-of-funds have generated good institutionalized investment approach, but including the likes of CDH Investments, Sequoia returns from China’s previous private equity a number of private equity players question Capital and SAIF Partners. When these funds frenzy, it is questionable whether they will whether this is a realistic goal in short term, were oversubscribed, Noah was said to channel be sustainable when clients become more given that fund-of-funds in China are still largely the extra capital into starting a fund-of-funds sophisticated. constrained by institutional and individual business. In February, Jingbo Wang, founder of In addition, given that IPO exit multiples investors too immature to appreciate the long- Noah, told AVCJ that the company’s renminbi- have fallen sharply in domestic bourses in recent

Number 35 | Volume 25 | September 18 2012 | avcj.com 7 Cover Story [email protected]

Top 10 Renminbi-denominated fund-of-funds vehicles. Shanghai Venture Capital is a case in point. Target Current The venture capital management company – Fund Launch size size state- FundName status date ($mln) ($mln) backed? which was founded in 1999 – now manages RMB600 million for the Shanghai government. In Guochuang Kaiyuan Private Equity Fund (CDB Second Dec-10 6000 1416 Yes Capital) Closed 2006, Shanghai Pudong Science and Technology Investment (PDSTI), another state-backed Jingzhao Fund (Noah Holdings) Final Closed Apr-10 732 787 No manager, also closed its first fund-of-funds Zhongguancun Venture Capital Introduced Fund Final Closed Nov-05 604 787 Yes at RMB1 billion. The private equity manager Beijing Private Equity Investment & First Closed Sep-09 1465 315 Yes subsequently closed two more similar funds in Development Fund 2009 and 2012 for Anhui and Hubei, respectively. Tianjin Binhai New Area Venture Capital Final Closed Jul-07 262 315 Yes Introduced Fund Diction Ying, managing director of at PDSTI, tells AVCJ that their Hunan Venture Investment Guidence Fund Final Closed Dec-10 150 157 Yes funds were launched to serve two underlying Shanghai Pudong New Area Venture Capital Final Closed Apr-06 125 157 Yes Fund-of-Funds (Pudong Incubation Fund) objectives: first, fund-of-funds may achieve better financial efficiency when compared with direct Suzhou Industrial Park Venture Capital Guidance Final Closed May-06 125 157 Yes Fund (Suzhou Ventures Group) investments done by the government; second, Venture Capital Guiding Fund of Shanghai Final Closed Jan-10 439 157 Yes investing into GPs will enhance the overall (Shanghai Venture Capital) development of private equity and venture Source: AVCJ Research capital within the region. “Given that every single dollar of our fund months, the more challenging fundraising China Life and China Insurance are all said to is channeled through our balance sheet, we environment may be an indication that investors have hired consultants to provide private equity are not a real fund-of-funds from a fundraising wanting speedy returns have now lost their advice instead of outsourcing their investment angle,” says Ying. “However, with the lack of appetite for the asset class. “There is no more activity. Small insurance companies – which clear regulations, participation from mature money from these LPs compared to a year have not been able to develop their own fund institutions - rather than individuals - is more ago and they don’t want to maintain their management teams – will be potential investors appropriate for the development of the whole commitments,” says Ludvig Nilsson, managing for local fund-of-funds, but none of them have fund-of-funds industry.” director of Jade Invest. “So a lot of renminbi LPs put their thoughts into action so far. While the rationale for the existence of these are selling their stakes and there is currently a big In addition, given the fact that most guidance funds is largely driven by government mess.” private equity and venture capital funds in incentives to promote private equity and attract China are not specialized funds, fund-of-funds people to set up shops in their specific regions, Immature LP Base do not necessarily serve a diversification it is not surprising that they often work with As HNWIs fail to guarantee long-term capital purpose, considering there is an extra layer of a different mandate, with less emphasis on sources for local currency funds, PE players management fees compared to directly investing financial returns. Jade Invest, for example, was eyes on the few institutional investors that may into GPs. According to a source close to the China approached but did not end up going to any of have the potential to deploy a large amount of Insurance Regulatory Commission (CIRC), while these partnerships as it doesn’t see the alignment renminbi capital in the private equity sector. insurers do not see local fund-of-funds being too of interests. In one corner, the National Social Security different from what they have internally, none of Fund (NSSF) is allowed to deploy as much as them has even remotely considered investing in A learning process RMB90 billion to the asset class; in the other, the such vehicles. Although many of the guidance funds do not top 10 insurance companies - under the current “The key problem is that no one in the consider financial numbers as their primary regulatory system - also have a potential private market is willing to pay for manager selection. objective, they also have to achieve reasonable equity allocation of more than RMB250 billion, Understandably, it is difficult to appreciate the returns in order to defend the feasibility of James Zheng, managing director of Fosun Capital value of manager selection until you have seen establishing a private equity industry in their Group, claims, citing official figures. low or negative returns from brand name funds regions. As a result, some guidance funds have “If we apply the global average - which is that and deals,” says Jade Invest’s Nilsson. “Local started to hire talented individuals from the fund-of-funds account for roughly 10% of total institutions don’t want to pay because they market, in a move to transform themselves private equity commitments - an existing RMB34 can set up their own teams, neither do HNWIs into commercial-driven entities that can make billion can be channeled from the NSSF and local because they just appreciate the placement meaningful investments. insurers, not to mention large conglomerates and solutions, which provide them discounts to some Suzhou Ventures has been the most HNWIs,” Zheng adds. “Yet, most of the Chinese famous GPs.” successful case so far. In 2006, it launched a RMB1 investors want to do private equity investments billion fund-of-funds, Suzhou Industrial Park by themselves as they believe they can make Government guidance funds Venture Capital Guidance Fund, alongside China money faster than hiring a manager.” Given the limited LP base, a recent trend is Development Bank (CDB). Four years later, the For example, the NSSF is already large and that private equity players have entered into pair launched another fund-of-funds targeting sophisticated enough to invest into private partnerships with local governments and state- RMB20 billion to invest in venture capital funds equity and venture capital funds through its owned entities to form guidance funds, which with an investment range between RMB200 in-house fund management professionals. work similarly to fund-of-funds in that they invest million and RMB1.5 billion. The fund is expected Insurance companies such as Ping An Insurance, in various private equity and venture capital to close at the end of 2012.

8 avcj.com | September 18 2012 | Volume 25 | Number 35 CoVEr story [email protected]

“It’s true that we started off being a guidance of-funds in the long run because it is a market Rebecca Xu, co-founder and managing director fund, but we have gone through restructuring that you don’t want to miss,” says Judy Qing Ye, of Asia Alternatives. “I would not be surprised processes to become a market-driven entity. managing partner of Yi Mei Capital. “Unless you if any of these players became a real fund-of- Now we are open to various investment regions manage renminb, you can’t understand the funds, given that investors will eventually need and stages,” Jipeng Wang, partner of Suzhou depth of the market. You can never evaluate the professional fund management services when Ventures Group, tells AVCJ, adding that the market by just taking a Western point of view.” they are overwhelmed by the market complexity company’s LP base will consist of institutional Globally, mature fund-of-funds markets are as time goes by.” investors, fi nancial investors and big private often driven by two kinds of demand. First, small Foreign players, which have institutional companies in the future. institutional and individual investors – who do platforms and long-term experience, may also While Suzhou Ventures has been the fi rst not have the expertise in fund management – help educate the market. At the moment, there case that has gradually taken a market-driven rely on fund managers who have the professional are plenty international fund-of-funds already approach and attracted the continuous support knowledge and skills to aggregate their capital working in the country, although they are using of CDB, more similar cases are expected to and get access to top-tier GPs. Second, large US dollars and investing in off shore funds. Based emerge as time goes by. Given that guidance institutional investors hire fund-of-funds to on the most recent defi nition from the National funds are currently the only local groups which access small-cap or specialized funds in areas in Development and Reform Commission (NDRC), have experience betting on a sizable number which they don’t have in-house expertise. any money managed by foreign GPs is still of funds, they would be in the best position to Similarly, once the LP base in China develops defi ned as foreign capital. As a result, GPs may become the next wave of fund-of-funds in China. to a stage at which it can embrace diff erent have to rely on local fund-of-funds, if any, to Some overseas players also recognize the types of demand, it will be time for renminbi enjoy domestic treatment. opportunity to test the water through an fund-of-funds to become a meaningful part “The race between fund-of-funds players will initial partnership with local governments. of the private equity supply chain. It’s possible be determined by whether pure local fund-of- EMAlternatives, through its China affi liate YiMei that Intermediaries - which have developed funds can develop institutionalized practices and Capital Management, launched a local currency a good client-base and start to adopt a more a track record before the market opens up to separate account with the MinHang district of international approach – will emerge as another allow groups like us to do renminbi fundraising,” Shanghai Municipal Government to invest in impetus for the fund-of-funds market, though says Vincent Huang, partner at Pantheon venture capital and private equity funds across not immediately. Ventures. “The entry barrier is still very high for the country. The local government has so far “Some of the intermediaries have been able renminbi fund-of-funds targeting institutional invested RMB500 million. to bring their clients good quality renminbi GPs LPs. For any group that meets the hurdle, there is “It’s the right move to develop renminbi fund- based on their own due diligence work” says very little competition and the market is huge.”

Asia has over US$318 billion in private equity funds under management

8th annual edition 7th annual edition 8th annual edition ASIAN VENTURE CAPITAL JOURNAL ASIAN VENTURE CAPITAL JOURNAL

PRIVATE EQUITY ASIA PRIVATE EQUITY ASIA ASIAN VENTURE CAPITAL JOURNAL AVCJ private equity and AVCJ private equity and venture capital report M&A ASIA venture capital report M&A ASIA AVCJ private equity and PRIVATE EQUITY ASIA Australasia India M&A ASIA 2012 2012 Just where and how are these funds venture capital report distributed? Read all about it in AVCJ Private Equity and Venture Capital Report, the annual China series of regional reports by the leading source of information on Asian private 2012 equity, venture capital and M&A. Reviewing the year’s activity in the industry, the regional reports are filled with up-to-date data and intelligence

8th annual edition 7th annual edition ASIAN VENTURE CAPITAL JOURNAL ASIAN VENTURE CAPITAL JOURNAL on fundraising, investments, exits and AVCJ private equity and PRIVATE EQUITY ASIA AVCJ private equity and PRIVATE EQUITY ASIA M&A ASIA M&A ASIA M&A. They also feature information venture capital report venture capital report North Asia Southeast Asia on key companies and transactions. 2012 2012 Offering global perspective alongside local opportunities, the regional reports include Australasia, China, India, North Asia, and Southeast Asia. For more information or to order, call Sally Yip at +(852) 3411 4921 or email [email protected].

* as of September 30, 2011. Source: AVCJ avcj.com Private Equity & Venture Forum Europe 2012 11 October 2012, No.4 Hamilton Place,

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avcjeurope.com Focus [email protected] Talk isn’t cheap Japan’s mid-market GPs must overcome perception issues and limited internal resources if they are to raise capital in a challenging market. Effective communication is the key

Japanese GPs are grappling with a private capital at Australia’s Commonwealth to bet on the growth of the larger buyout market perception problem. It is generally accepted that Superannuation Corporation, achieving this level in Japan. the bumper funds raised in the previous cycle, of comfort involved 5-6 years of dedicated effort Georgiadis is the exception, saying that prior to the global financial crisis, have failed using people on the ground. Hermes is agnostic towards fund size, but close to meet expectations. As a result, investors are A failure to understand the Japan market is attention is paid to average equity check size and voting with their feet and many domestic LPs are one of several reasons for the perception gap, the kinds of deals a GP wants to do. reducing their exposure or withdrawing from the adds Saki Georgiadis, head of Asia at Hermes asset class. GPE, a UK-based private pension fund. Western Stretched too far For mid-market private equity firms looking investors have been trimming their Japan Even if the fund size is appropriate and the to replace exiting Japanese LPs with offshore exposure for macro reasons: the country’s manager succeeds in explaining that Japan’s capital, communicating their investment story – economy has been treading water for a decade, mid-market differs from the larger buyout space, i.e. that they shouldn’t be bundled in with bigger while LPs have become accustomed to 2-3% two challenges remain. Firstly, although the players – has become a make-or-break issue. GDP growth from the developed markets in corpus fits the market, is it large enough to make “The primary challenge we are facing is the which they deploy capital. the partnership sustainable and able to retain deep perception gap between the international staff at all levels? Secondly, do smaller GPs have view of Japan and the reality,” says Naoto the internal skills and resources to raise money Mizoguchi, managing director at GPDRC Capital, “There is a deep from a reconstituted LP base? speaking at the AVCJ Japan Forum in . “Smaller GPs are less sophisticated in terms Certainly, less capital is flowing into Japan- perception gap of the GP-LP relationship because they haven’t focused funds. In the first half of 2012, a total between the got as much experience or they haven’t been to of nine vehicle attracted about $253 million in Harvard,” says Commonwealth Super’s Bayles. “We capital, data from AVCJ Research shows. In the international view of have to ask how much money can the GP raise?” three years following the global financial crisis, For a GP that operates with limited resources annual average fundraising surpassed $2 billion; Japan and the reality” and that can’t support a large investor relations for 2006-2008, it averaged $6.6 billion. team, it is standard practice for investment – Naoto Mizoguchi DRC reached a final close on its most recent professionals to spend months on the road fund in April 2012 at JPY6.6 billion ($82 million). fundraising. At the same time, they might The entire process took two-and-a-half years. Attitudes might change now that Europe, for be coordinating exit strategies for portfolio Domestic investors were first approached in 2009 example, has run into economic difficulties of its companies in order to prove to prospective and a parallel structure for international LPs was own, but Georgiadis notes that there isn’t always LPs that they have ability to return money to set up in 2011. This was the first time DRC had a correlation between GDP growth and private investors. accommodated foreign investors, and it held equity returns. “We’ve been investing in the The process is made even more difficult road shows in Hong Kong, Singapore and the US Italian market for a long time and the economy if intermediaries are unwilling to help out. in order to drum up appeal. hasn’t moved in the last 10 years,” he says. “It According to John Fadely, a Hong Kong-based Other mid-market GPs are making similar has lost about 30% of its competitiveness since partner with Weil’s global fund formation group, efforts, undertaking frequent trips to Hong joining the euro, but we’ve made good returns.” placement agents tend to focus on funds raising Kong to meet potential investors. Gregory The most important issue, however, is fund $250 million or more. Hara, director and president of J-Star, which is size. Negative sentiment tied to the bubble in As to how all this feeds through to the wider targeting around JPY15 billion for its second the last cycle means that GPs must convince perception issue, Fadely offers a neat contrast fund, told AVCJ last month that he has been prospective investors that their target fund size is with China up until about 12 months ago. Such communicating with foreign LPs for several years commensurate to the opportunities available. was the level of investor enthusiasm there that with a view to building direct relationships. Asked what they look for in a manager, large commitments were made to domestic LPs participating in the forum panel express a vehicles with little thought as to the country’s Know your markets preference for smaller vehicles. Bayles says it is economic trajectory. As a result, a lot of money Turning around the situation requires effort on Commonwealth Super’s policy to move down has entered funds and there is little detail on the LP side as well. Resources must be deployed into the mid-market when targeting country how returns are being pursued and over what to fully understand what the Japanese market funds, because there are more ways to add value timeline. has to offer: governance and cultural issues that as opposed to relying on leverage multiples. Japan doesn’t have the same problems, feed into the Western-style private equity models Motoya Kitamura, senior vice president at Fadely explains. “It’s more a case of how do aren’t necessarily applicable in Japan. According Macquarie Funds Group, adds that he is biased you make private equity work in a stakeholder to Greg Bayles, senior portfolio manager – towards smaller funds because he doesn’t want culture. GPs must come out and tell the story.”

Number 35 | Volume 25 | September 18 2012 | avcj.com 11 Private Equity AVCJ & Venture Forum 2012

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RegistRation enquiRies: sponsoRship enquiRies: Anil Nathani Darryl Mag For more information: t: +852 3411 4938 t: +852 3411 4919 avcjforum.com e: [email protected] e: [email protected] deal / fund of the week [email protected] NBC Capital reaps 20% IRR from Fenix Fitness

When it comes to assisting the equivalent of 4.7x the company’s forecast EBITDA It was then that Fenix Fitness was born. A growth of their portfolio companies, some PE for 2013. “Strategically and tactically we were very new CEO and CFO were installed by NBC, while firms are more hands-on than others. At the strong in leading the way,” said Shane Lawrence, Lawrence was appointed as chairman of the more pro-active end of the scale sit the likes of general partner at NBC. “We provided a financial board, and Bernard Stapleton, director, occupied NBC Capital, which during its four-and-a-half- platform [supplied by Bank of Western Australia] an additional seat. Their strategy was three-fold. year ownership of local health club chain Fenix right through the great financial crisis, despite They wanted to bring in a corporate structure – Fitness, held daily discussions the strange looks the banks policies and procedures; drive organic growth, with the company’s CEO were given the sector at the and support the firm in making acquisitions. “We and CFO. It also met with time.” executed very successfully on one and two, but management on a weekly NBC was in a strong only made two acquisitions, because there wasn’t basis. position to influence Fenix the quality out there that we had expected,” said This week, Brisbane-based ever since it entered into the Lawrence. “When we got into the bowels of our NBC announced that it had company in January 2008, various competitors – the mums and dads who exited its investment, having picking up a 65% stake as were out running gyms – we struggled to find agreed the sale of Fenix to part of a proprietary buy-in good quality assets, and when we did, the pricing Goodlife Health Clubs – management buy-out was often not appropriate.” owned by ASX-listed Ardent NBC first invested in Fenix in 2008 (BIMBO) transaction worth Fenix thus grew by mostly organic means. Leisure Group - for A$60.9 A$21 million. Back then the Over time, NBC injected additional equity into million ($64 million). The deal, which is subject to company consisted of four clubs, which had Fenix, thereby increasing its stakeholding to landlord consent and the securing of financing been in operation since 2004 as franchisees of the more than 80% it held up until this week. on the part of the buyer, sees the private equity the Genesis Fitness Clubs chain. Those clubs’ The company, which operates in Victoria and firm reap an IRR of 20% on its investment, which founders invested alongside NBC in the deal, Queensland, opened its eleventh outlet on equates to a money multiple of around 2x. which was financed by roughly equal amounts of Monday, and has a twelfth under development. It According to Ardent, the purchase price is the equity and debt. now employs more than 1,000 people. MGPA reaches first close on real estate fund

The latest fund being raised by multiple that you’d get from an opportunity Capital is helping to shore up funds, with MGPA marks a departure from the investment fund.” minimum subscriptions in the $20-25 million firm’s previous real estate vehicles. MGPA Asien Despite the lower return expectations, range. Spezialfonds, which announced a first close on MGPA believes Asien Spezialfonds constitutes As LPs will be able to enter the vehicle under EUR85 million ($111 million) last week, represents an opportunity to take advantage of the strong equal terms at any point in the investment the firm’s first so-called yield-focused core-plus pipeline of core-plus real estate deals available. cycle, the lifespan of the fund is as yet product for Asia, and is a contrast to opportunity- Regulated under German investment laws, it underdetermined but is likely to be in excess of focused vehicles MGPA Asia Funds I, II and III. will focus on established 10 years. Up to five fund Whereas MGPA’s first three funds have markets such as Japan, closes are expected in total, concentrated on acquiring assets requiring Australia, Hong Kong, with the second forecast heavy refurbishment and development - often Singapore and Malaysia, for later this year and the including buildings which are unlet or have with a particular interest in final close anticipated in very low occupancy, which they then lease the office and retail sectors. 2013. and reposition - Asien Spezialfonds will largely Ticket sizes are likely to MGPA has operated in buy buildings that are already let, reposition oscillate between $40 Asia since 1999 and has them and collect the yield from rental and million and $100 million. 13 offices across Asia- management income. The German-based Pacific and Europe. Asien “The fund will focus on buying things that vehicle – which, unusually, The fund’s key focus is Japan and Australia Spezialfonds will be mainly either have an existing yield or that you can is principally targeting managed from Hong Kong. create a decent yield from very quickly,” MGPA’s investors in German-speaking countries - has so In June 2008, the firm closed its third Asia Asia CEO John Saunders tells AVCJ. “You’re taking far received commitments from three German fund at $3.9 billion, nearly $3 billion more than a lot less risk in the process but you’d typically institutions towards its target of EUR500 million. its predecessor, which was launched in 2005. expect to get around a 5% yield and a 10-12% Two of these investors contributed substantially The vehicle invests in offices, retail, residential, IRR rather than the 17-20% IRR and 1.8x equity more than the third. Placement agent Selinus logistics and hotel properties.

14 avcj.com | September 18 2012 | Volume 25 | Number 35 Private Equity Data file | AVCJ research [email protected]

private equity in asia Investment Breakdown by Country From 1 January to 30 August 2012 Investee Country Amt. Invested US$m No. of Deals (Disc.) No. of Investees China (PRC) 15,905.6 294 166 293 Australia 6,392.9 58 36 58 South Korea 5,088.7 97 89 94 Japan 4,795.6 223 163 219 India 3,880.4 268 188 260 Malaysia 1,599.7 13 12 13 Hong Kong 1,563.9 19 15 18 Mongolia 425.0 1 1 1 New Zealand 274.5 10 6 10 Thailand 260.7 6 2 6 Indonesia 166.2 11 4 11 Singapore 136.4 19 8 19 Sri Lanka 48.3 4 4 4 Vietnam 30.0 7 2 7 Taiwan 10.2 4 2 4 Philippines 2.0 1 1 1

fund-raising monitor

Closed Fund Location: Hong Kong Fund Name: Asia Alternatives Capital Partners III, LP Closing Amount: US$1.52 billion (final close) Launch Date: January 2011 Fund Manager/Advisor: Asia Alternatives Management LLC Stage Focus: Buy-outs (MBO/MBI/LBO), Expansion/ , Mezzanine/ Pre-IPO, PIPE Financing, Start-up/ Early Stage, Turnaround/ Restructuring Industry Focus: No Preference Geographical Focus: Australia, China (PRC), India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand, Vietnam Contact: Rebecca Xu Phone: (852) 2588-7500 Email: [email protected] Website: www.asiaalternatives.com Update: Asia Alternatives Capital Partners III at $1.52 billion. The fund-of-funds targets at top performing private equity fund managers across the dynamic and growing markets of Asia. It invests in Greater China, Japan, Korea, South East Asia, India and Australia and across buyout, growth, venture capital and special situations funds. The pool of capital is divided between $908 million in one flagship fund called Asia Alternatives Capital Partners III and about $600 million in separate accounts for large individual investors. Institutional investors include Cathay Life Insurance, the Church Pension, Comprehensive Financial Management, Massachusetts Mutual Life Insurance Company, New Mexico State Investment Council, New York State Common Retirement Fund, OHIM Asia Investors, an affiliate of Oak Hill Investment Management and Pennsylvania State Employees’ Retirement System.

New Funds Location: Indonesia Fund Name: Capsquare Asia Partners Fund I, L.P. Target Amount: US$75 million Launch Date: August 2012 Fund Manager/Advisor: Capsquare Asia Partners Ltd. Stage Focus: No Preference Industry Focus: Consumer products/services, Medical, Services - Non-Financial Geographical Focus: Indonesia Contact: Ridwan Budijono Phone: (62) 21-2993-7270 Email: [email protected] Website: www.capsquare-asia.com Update: Capsquare Asia Partners has raised $56 million for its first private equity fund targeting at $75 million. The Fund will invest in Indonesia in consumer-driven industries, notably FMCG, retail, education and healthcare for $10-15 million each. The Fund is looking to complete the final close in fourth quarter of 2012.

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