Industry Outsiders Japan Debut Through Tokai Kanko Investment What Can Female Gps Do to Shatter Private Equity’S Glass Ceiling? Page 7 Page 13

AVCJ Private Equity & Venture Forum 2011 AVCJ Private Equity & Venture Forum 2011

Japan Hong Kong 18 - 19 October 2011 7 - 10 November 2011 www.avcjjapan.com www.avcjforum.com ASIAN VENTURE CAPITAL JOURNAL

Asia’s Private Equity News Source avcj.com July 26 2011 Volume 24 Number 27

Editor’s Viewpoint The Asian office: local, regional or both? PRIVATE EQUITY ASIA Page 3

News 3i, Actis, CalPERS, Carlyle, CHAMP PE, CICC, CITIC PE, IDG, Khazanah, KIC, LaSalle, Lone Star, Sequoia, Warburg Pincus M&A ASIA Page 4

Focus Retirement homes have emerged as a private equity hot spot in Japan Page 12

Deal of the week Hony Capital makes Industry outsiders Japan debut through Tokai Kanko investment What can female GPs do to shatter private equity’s glass ceiling? Page 7 Page 13

Deal of the Week analysis

Indian power play Third-party flaws Blackstone closes in on Visa Group deal Page 13 PRC investment structures spark concerns Page 14 AVCJ Private Equity & Venture Forum GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY

24 TH ANNUAL avcjforum.com

Hong Kong 2011 7-10 November . Grand Hyatt Hong Kong

The premier gathering for Private Equity investors in Asia Visit avcjforum.com for the latest programme and confirmed speakers KEyNoTEs John Connaughton David Rubenstein Christopher Flowers henry Kravis Managing Director Co-Founder & Chairman & Co-Founder, BAIN CAPITAL Managing Director Chief executive officer Co-Chairman & Co-Ceo THE CARLYLE GROUP j.C. fLOwERS & CO. LLC KOHLBERG KRAVIS ROBERTS & CO.

howard Marks Jonathan M nelson David bonderman Chairman Ceo Founding partner OAKTREE PROVIdENCE EqUITY TPG CAPITAL PARTNERS

PLEASE CONTACT OUR RegistRation enquiRies: Anil Nathani sponsoRship enquiRies: Darryl Mag PROjECT TEAm fOR: t: + 852 3411 4938 e: [email protected] t: +852 3411 4919 e: [email protected]

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Managing Editor Tim Burroughs (852) 3411 4909 Senior Editor PRIVATE EQUITY ASIA Brian McLeod (1) 604 215 1416 The Asian office: Associate Editors Maya Ando (852) 3411 4908 Anita Davis (852) 3411 4808 Creative Director M&A ASIA Dicky Tang Regional, local or both? Designers Catherine Chau, Edith Leung, Mansfield Hor, ManYee Mak, Tony Chow

Research Manager I’ve said before that it’s high time one office, although professionals can expect to Helen Lee GPs based in US and Europe resume plans to set spend plenty of time living out of hotel rooms as Research Associates Alfred Lam, Tweety Lau, up offices in Asia. Before these ambitions were they conduct due diligence. Perhaps this is now Venus Yeung, Kaho Mak mothballed during the global financial crisis, I changing as we see some fund-of-funds – notably Circulation Manager was often asked where in the region it is best to HarbourVest in Japan and Partners Group in South Sally Yip locate an office. The same question was posed Korea – branch out into countries where they Circulation Administrator to me at a recent event by an American fund feel the competitive landscape requires closer Prudence Lau manager. relations with GPs. Senior Manager, Delegate Sales But it seems that most GPs have become As the Asian private equity industry continues Anil Nathani sufficiently familiar with Asia to realize that there to evolve, the question of where to establish Marketing Manager isn’t much of a debate – it falls down to logistics a regional headquarters is blurring. A number Annie Ng and focus. of exceptional firms like Navis Capital and MBK Director, Business Development In the past, the choice for the one Asian office Partners – run out of Kuala Lumpur and Seoul, Darryl Mag is usually between Hong Kong and Singapore. respectively – have shown that regional private Sales Coordinator Those that opted for Hong Kong did so because equity can be successfully conducted from Debbie Koo of, amongst other advantages, its proximity to elsewhere in Asia. Conference Managers the major markets of Greater China and North That said, both Navis and MBK are also prime Matthew Swainson, Jonathon Cohen Asia. The Singapore faction tended to be either examples of the hub-and-spoke model: They Conference Administrator Amelie Poon primarily interested in the Southeast Asian and cultivate local networks out of offices in other Conference Coordinator Indian markets or keen to have easy access to parts of Asia while senior partners lead the fund Fiona Keung, Jovial Chung many of the region’s most established LPs such as with a regional perspective. Publisher & General Manager GIC and Temasek. Allen Lee The Hong Kong vs. Singapore question is Managing Director probably only relevant for the larger buyout Jonathon Whiteley firms that get a large part of their deal flow from Vice President, Administration Harmony Heung sell-side bankers as neither city – despite their Chairman Emeritus popular IPO markets – have shown little activity Allen Lee Dan Schwartz in terms of investments. For venture firms and Publisher those focused on minority stakes, it is difficult to Asian Venture Capital Journal compete with country-specific firms with an on- Incisive Media the-ground presence and local networks. 20th Floor, Now we see that even the larger firms are Tower 2, Admiralty Centre 18 Harcourt Road, setting up offices in countries with strong activity Admiralty, Hong Kong T. (852) 3411-4900 such as Australia, India, China, Japan and, most F. (852) 3411-4999 recently, Indonesia. E. [email protected] URL. avcj.com For LPs, in particular fund-of-funds, the realities have traditionally been somewhat different. Most Beijing Representative Office Room 1805, Building 10, of these players are visited by funds seeking to Jianwai SOHO, 39 East 3rd-Ring Road, raise capital so there is no real need for more than Chaoyang District, Beijing 100 022, China T. (86) 10-5869-6205 F. (86) 10-5869-7461 Private equity rms in Hong Kong and Singapore E. [email protected]

Singapore 205

Source: AVCJ Research * Until July 26, 2011

Number 27 | Volume 24 | July 26 2011 | avcj.com 3 News

CalPERS, CalSTRS announce partner in Beijing. He joins the firm after 10 Australasia years at Credit Suisse, where he was most gains in excess of 20% recently managing director and vice-chairman CHAMP looks to sell US pension fund CalPERS announced a 20.7% of investment banking in Greater China. Su is return for the year ending June 30, a 14-year charged with sourcing and executing private Australian fuel transporter high, while sister fund CalSTRS reported its best equity investments, banking on his past CHAMP Private Equity is looking to sell portfolio performance in 25 years with growth of 23.1%. experience dealmaking in the areas of energy, firm International Energy Services (IES) for The results suggest that the pension funds have consumer, healthcare, real estate, technology and A$375 million ($405 million), and has attracted rebounded from the lows of the global financial industrials. interest from Australian and Asian logistics firms, crisis, but both remain underfunded due to poor Reuters reported. IES is said to be the largest performance in the past decade. China’s HNA Group tipped fuel transporter in Australia, with additional CalPERS’ assets have a market value of around operations in Singapore and the US.. $237.5 billion, up from $200.5 billion a year earlier. to win battle for GE SeaCo Gains from private equity came in at 25.3%. Chinese conglomerate HNA Group is likely to LaSalle buys Trinity Funds The value of CalSTRS’ portfolio increased by $29 outbid private equity firm Kelso for container billion to $154.3 billion over the course of the leasing business GE SeaCo, the Financial Times Management year, with private equity gaining 22.5%. reported. The company has been put up for sale LaSalle Investment Management has agreed to by General Electric (GE) and its joint venture acquire Trinity Funds Management (TFM) from partner and could fetch $2.5-3 billion, including Australian property groups Trinity Group and debt.. Clarence Property Corp. for A$9.25 million ($9.9 million) plus the net assets of the business. Upon Sequoia leads $10m completion of the deal, LaSalle will increase its assets in Australia to A$1.7 billion. investment in MoboTap Sequoia Capital led a $10 million Series A round of financing into US- and China-based mobile Greater China browser developer MoboTap, marking the venture capital firm’s first investment in a mobile CICC tipped to buy stake in browser. Matrix Partners also participated in the funding. MoboTap is the developer of Dolphin Chinese trust company RMB100 million in the fund, which would provide Browser, a product that enables Google Android China International Capital Corp. (CICC) is poised financing for acquisitions as well as resources and mobile users to create web pages through faster to buy a 35% stake in Zheshang Trust, stretching property companies. and simpler gestures than traditional handset its financial industry scope to include the browsers. country’s innovative yet opaque trust sector. The More China audit concerns company, which is part-owned by TPG Capital and KKR, will likely launch the new venture later for Carlyle India this week, the Financial Times reported. Auditing procedures and financial controls have been called into question at China Energy Warbug Pincus begins China launches first car- Recycling and Concord Medical Services, both of which are in The Carlyle Group’s China portfolio. Kotak Mahindra divestment focused PE fund This comes after fraud investigations at China Warburg Pincus has begun to divest its 9%-plus China’s first auto sector-focused private Forestry and China Agritech, which have also stake in Kotak Mahindra Bank, selling a nearly equity fund is looking to raise RMB30 billion received investment from the private equity firm. 2% in the open market. The PE firm had a 9.28% ($4.6 billion), the Financial Times reported. stake in Kotak Mahindra worth approximately The Shanghai Automotive Industry Fund is a Mandolin Fund ups stake in $700 million. It sold a 1.88% stake in first quarter joint venture between the China Machinery of this year, with some reports suggesting that Industry Federation and the government of Sino-Forest more shares have been sold recently. the city’s Jiading district. It is looking beyond Singapore-based Mandolin Fund has upped car production to auto-related services such as its stake in Toronto-listed Sino-Forest by 1%, Strategic Ventures sells rental, logistics and exhibitions. bringing its total minority stake in the firm to 10.9%. The move prompted Sino-Forest’s shares stake in CBaySystems CITIC PE to launch $773m to rise 12% to a 52-week high. Its stock has fallen Strategic Ventures Fund (SVF), a Mauritius- more than 75% percent since early June due to based private equity fund managed by mezzanine fund accusations of fraud. The firm denies the charge. Frontline Strategy Limited, has sold its stake in The private equity unit of CITIC Securities is in Indian clinical-services outsourcing specialist looking to tap into debt finance by launching 3i names Paul Su senior CBaySystems, for a 4x return on its original a RMB5 billion ($773 million) mezzanine fund, investment, AltAssets reported. SVF has made Reuters reported. Zhonghong Real Estate said partner in China 15 investments in India and this is its 11th in an exchange filing that it plans to invest 3i China has appointed Paul Su as a senior completed divestment..

4 avcj.com | July 26 2011 | Volume 24 | Number 27 News

IDG India invests $3m in Vodafone wants PE partner Southeast Asia mobile advertising firm for its India business IDG Ventures India has invested $3 million in Vodafone is in talks with at least two private Actis exits Asia Books mobile advertising company Vserv as part of equity companies as it seeks a replacement for a first round of institutional funding. Mumbai- its Indian partner Essar, The Economic Times in Thailand based Vserv.mobi launched in January 2010 and reported. The UK-based telecom carrier took Actis Capital and Thailand Equity Fund (TEF) have claims to deliver in-app adn WAP advertising to Essar’s 33% in the business for $5.46 billion earlier jointly exited their 100% stake in Asia Books, a clients in more than 200 countries. this month. In doing so it exceeded the foreign leading foreign-language books and magazine ownership limit for India’s telecom sector by vendor in Thailand, to Bangkok-based Berli Jucker. Trinity Capital exvits Indian 1%, which means it must divest a portion of its The exit comes five years after Actis led the MBO holding to a domestic entity. of Distri-Thai, which was the largest distributor of property stake to Keystone foreign-language magazines in the market and Trinity Capital has sold its 16% stake in Kapstone managed the Bookazine chain. Constructions, a subsidiary of Mumbai-based developer Keystone Realtors, back to the parent CLSA buys into Indonesian company for about £12.6million ($20.2million). The sale comes five years after the UK-based real auto financing firm estate fund bought the holding from Keystone CLSA Capital Partners (CLSACP) has paid $20 for a reported $17 million. million for a minority stake in PT Sinar Mitra Sepadan Finance (SMS Finance), an Indonesian SCPE invests in PepsiCo’s auto financing firm. The transaction was made through the $333 million Aria Investment top Indian bottler Partners III fund, which closed in July. It is the Standard Chartered Private Equity (SCPE) is set Separately, Vodafone is looking for a foreign fund’s ninth investment. to pay INR250 crore ($56 million) for a 5% stake partner to take a stake in its India operation. The in PepsiCo’s top bottler in South Asia, Varun company is thought to have invested around $18 Hermes GPE to open in Beverages International, The Economic Times billion in its India assets but analysts say that the reported. That commitment would value the business is only worth $12-14 billion, given the Singapore this year company at more than $1 billion. The funding current state of the market. Hermes GPE, the European private equity and would be used to support the company’s infrastructure investment firm, will extend its expansion in India as well as in markets including operation to Singapore and the US this year. The Morocco, Nepal and Sri Lanka. on deals with other sovereign wealth funds. Choi limited partner has already invested $600 million also pledged to strengthen ties with foreign in more than 30 private equity funds in Asia private equity and pension funds. Pacific over the past decade. Hermes has been North Asia investing in the US since 1996, and manages Lone Star’s former Korea more than $1 billion in US-based assets. Lone Star to begin Tokyo head taken into custody Lazard appoints Peter Kuo Star divestment Paul Yoo, the former head of Lone Star in South US-based buyout fund Lone Star has begun Korea, has been detained after a Korean judge as MD preparations to divest its 30% stake in Japanese labeled him a flight risk amid allegations that he, Financial advisory and asset management firm lender Tokyo Star Bank, Reuters reported, adding Lone Star and the Korean Exchange Bank (KEB) Lazard has appointed Peter Kuo as managing that Lone Star has asked investment banks to manipulated KEB’s stock prices. The news comes director and head of equity capital markets submit proposals to advise on the potential as the buyout firm looks to sell its majority stake in Asia, effective immediately. Kuo joins from sale. Lone Star and other investors acquired in KEB, whose board Yoo is still on, for $4.1 billion diversified management group Cowen and Advantage Partners’ shares in the distressed to Hana Financial Group. Company, where he was managing director. bank, which gave up its ownership stake due to difficulties in repaying debt. A&P wins approval for Khazanah names QIA’s Takefuji rehabilitation plan Shen as executive director KIC’s new CEO pledges to Takefuji, a failed Japanese consumer lender, Khazanah Nasional Bhd, the investment boost PE exposure has finally received court approval for its holding fund of the Malaysian government, has Korea Investment Corp.’s (KIC) new chief rehabilitation plan. Korean firm A&P Financial, appointed Kenneth Shen as executive director executive has pledged to boost the sovereign which beat the likes of Cerberus Capital of investments. Shen was formerly adviser to wealth fund’s exposure to alternative investments Management, TPG and J Trust to win the the chief executive officer of Qatar Investment such as private equity and commodities. Making bankruptcy administrator’s backing, will take over Authority (QIA) where he oversaw direct his inauguration speech, Choi Chong-suk added the company. A&P’s involvement means Takefuji’s investments in public and private companies that the $46 billion fund would continue to lending business will continue and as much as as well as investments in private equity, special actively invest overseas, potentially partnering 24% of its debts will be repaid. situations and venture capital funds.

Number 27 | Volume 24 | July 26 2011 | avcj.com 5 This announcement appears as a matter of record only. June 2011

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[email protected] www.lexingtonpartners.com Cover Story [email protected] Minority report Private equity is a man’s world, in Asia and everywhere else. What can women on the inside do to bring about change?

When asked to name the most Women occupy a paltry 8.7% of executive difficult aspect of being a woman in private positions in private equity outside Europe and equity, Lisa Suennen, co-founder and managing North America, according to a Prequin report member of California-based venture capital released in February. Europe leads the field healthcare investor Psilos Group, cites the adage with 9.1%, while North America is on 8.9%. that women need to work twice as hard to get Statistics on the topic are difficult to come by, half as far as men in the industry. “It’s annoying and Prequin’s figure itself is wide-reaching, that women have to work to have their ideas encompassing buyout, venture, mezzanine, taken seriously while men’s ideas are presumed distressed debt and other private equity vehicles. to be worthy of serious consideration,” she If the number of women GPs were specifically explains. “Just the idea that there is an inequity for examined, representation would undoubtedly fall no reason drives me crazy.” below 8.7%. Women from the US to Asia and everywhere in between hear their predecessors say that, in Unappealing lifestyles business, it’s still a man’s world. The imbalance is Women are seemingly more prevalent in the all too apparent in private equity, where women venture and LP space. According to Prequin, 6.7% make up less than 10% of executives globally. of executives in global buyout funds are women, Strenuous work schedules, constant traveling compared to 9.5% in venture funds and 11.3% and the general testosterone level in offices have in real estate funds. Female managers in Asia been cited as reasons why women have instead corroborate these findings. Archana Hingorani, IL&FS Investment Managers gravitated toward other areas of finance. This, sources add, has much to do with Yet female industry participants in Asia and the lifestyle attached to these roles, which are says Anna Cheung, a partner at 3i in Hong Kong. the US contest these claims, saying that the job oftentimes less rigorous than being a fund “In society men are viewed as the breadwinners specs are comparable to those in other high- manager. A GP’s lifestyle includes long hours and and women find their own compromises to strike pressure environments. The difference is that non-stop travelling, which plays into the age-old their balance.” it is much harder to open the door in private axiom that women largely opt to spend more This hasn’t been lost on men. GPs operate equity. time with their families and children. While this under tight quarters when managing funds and “I think the main reason we’re seeing archaic mindset has been outgrown by many, companies, and dependence on each member few women in the industry is because it is both women and men say there is an element of of the team is crucial. Given this dynamic, fear predominantly comprised of smaller partnerships truth in the thinking. “If I had to pinpoint a reason that a woman might depart a fund to focus on that don’t necessarily have the same pressure why there are fewer women in GP roles I would her home life has been know to be taken into to hire a diversified staff,” says Sheryl Schwartz, guess that it has something to do with the job consideration at interviews – whether such an senior managing director or general partner nature and the balance of work life and family,” event is founded or not. Perseus in New York, where she is also surrounded by men. “I think people like to hire Proportion of senior female PE employees by discipline people who are like themselves. As long as you have white men at the top doing the hiring, they’re going to be inclined to hire men.” A proactive human resources department Buy out 6.7 might make a difference but these are lacking in companies that, in the vast majority of cases, aren’t publicly traded and so aren’t really Venture 9.5 accountable to anyone apart from their LPs. So Discipline too might a broader-minded outlook among Real Estate 11.3 industry leaders. Regardless of where blame is pinned, the outlook is not positive: For all that women and men hope that the industry’s 0 4 8 12 glass ceiling can be shattered, they are at a loss % of female senior employees to name a factor that could have a significant Source: Prequin Research enough impact.

Number 27 | Volume 24 | July 26 2011 | avcj.com 7 Cover Story [email protected]

Archana Hingorani, CEO and executive must be at least 40% female, while Belgium, director of IL&FS Investment Managers in Italy, the Netherlands and Spain have mandated Mumbai, recounts stories in which male that female representation on corporate boards interviewers ask prospective junior-level female reaches 30-40% by 2015 or 2016. employees “how many people are at home” as It is difficult to say what knock-on effect a way to decipher whether they are married, this might have on private equity. Even at the single or has children. “It’s an emerging market larger firms, the KKRs, Blackstones and Carlyles mentality,” she says. “Even if they don’t ask, they of the world with established human resources may think it in their heads. This is really only departments, women are still very much the relevant for entry-level spaces because once minority. you’re beyond middle management it’s not as More than 13% of The Carlyle Group’s much of a concern.” executives at managing director level or above Although most sources who spoke to are women, although this figure is smaller in AVCJ have seen or experienced some form of Asia, according to Dorothy Lee, a spokeswoman inequality, they agree that the key to overcoming for Carlyle Asia. Lee was quick to mention these obstacles is to “perform the hell out of your that female representation is higher in other Anna Cheung, 3i Group job,” and “never play the family card.” areas, such as human resources, corporate Schwartz admits to missing important communications and back-office operations. independent funds. Asia has been a hotbed of moments in her children’s lives for her job – The firm also works to foster women’s careers spinoff vehicles. In China, former Baring Private something that both men and women constantly internally by sponsoring social gatherings and Equity executive Kathy Xu launched Capital Today, Melissa Ma, Rebecca Xu and Laure Wang started Asia Alternatives, and, most recently, Mary “We are invested in a couple in funds in China Ma departed TPG to launch Boyu Fund. Activity in India has been led by Renuka Ramnath, who that have women managing entire offices, and departed ICICI Venture to launch Multiples they’re actually some of our best-performing Alternate, and Veronica John, who started Serasi Capital after leaving IL&FS. funds” – Jason Sambanju This kind of autonomy, though, is usually only achieved after years of hard work proving one’s worth in a male-dominated environment. struggle with – but refuses to use this to evoke workshops that connect women in the firm Extensive networking and a thick skin are crucial special treatment. She passes this wisdom along across all pay grades. to getting a place at a firm, but once there, to female staff who struggle with competeing Blackstone Group and KKR did not respond to women can still feel like outsiders in a way that demands of work and children. “The women who AVCJ queries by press time. men don’t necessarily appreciate. Plenty of struggle with it are the ones who have trouble Interestingly, there is a global trend for female industry participants admit to reading the delegating. They don’t want someone else taking women to create their own opportunities. sports pages in order to have something to chat their kids to the doctor,” she says. “My advice is that Rather than work their way up the ladder to about over the water cooler. Some still do for the you need to have significant support at home in the top of existing firms, women are launching benefit their LPs in the US. terms of family, staff or your spouse.” “You never want to walk into a meeting where there was a big baseball or basketball Time will tell game in whatever state you’re visiting and not Time may ultimately level the playing field. know about it,” says one Asian-based GP. “It’s also It is also possible that as more of the large not just sports. When we complete a big deal private equity firms go public there will be a the guys want to go out to bars and celebrate. trickledown effect in terms of investment in I’d rather go home and put my feet up or get a human resources infrastructure, adherence to massage, but I still go to the bar with them.” industry best practice and compliance with equal Not everyone feels that the social aspect of opportunities standards. firms is so linear. Women in Asia and the West say But suggesting that the number of women in that they’ve been able to broker relationships private equity could be bolstered through policy with their male coworkers by talking about initiatives is a slippery slope. “That’s like saying politics, current events and the business at hand. women can only be successful when funds are According to Psilo’s Suennen, the one thing told they must be diversified,” Cheung says. women can do to make the workspace less Nevertheless, earlier this month a group of isolating is to jump in and initiate change. 19 headhunting firms in the UK signed a pact Women tend to shy away from the places where to ensure that at least 30% of all candidates on the guys congregate to talk money, and forget to the long lists of FTSE 350 directors are women. mix business with pleasure. This comes as the UK government aims to see “If you’re standing on the sideline of the 25% of all FTSE 100 boards comprise women. kids’ soccer match with a male private equity Currently, the boards of Norwegian companies Rebecca Xu, Asia Alternatives Management executive or entrepreneur, talk about your

8 avcj.com | July 26 2011 | Volume 24 | Number 27 Cover Story [email protected]

fundraising strategy,” she advises. “And most However, there are a handful of professionals China, the LP observes that it is so difficult for important is a wicked sense of humor. When – ranging from Capital Today’s Xu, to Kendall female fund managers to rise to the top that you inevitably face the anti-female comment, it Court’s Yeo Kar Peng in Singapore, to Multiples some overcompensate and behave in an overly is best to respond with wit and a shot right back Alternate’s Ramnath – whose reputations aggressive manner. Others, meanwhile, aren’t over the bow.” precede them. aggressive enough, and this costs them business. “We are invested in a couple in funds in Unsurprisingly, most female GPs find this She says, he says China that have women managing entire attitude chauvinistic. “Why is it when women On the whole, the women who spoke to AVCJ say are tough then it is viewed negatively? And if they see few inklings of discrimination in terms men are tough, they like it? It’s a difference in of day-to-day duties, especially from their direct “When you produce perception,” 3i’s Cheung says. “What I’ve largely teams. It is generally accepted by both sexes that seen in this industry is that people are judged by men in private equity can be crude, whether cash returns to their ability.” it’s their sense of humor of the way they banter, investors, they are Asian private equity professionals are to a but there is no willful desire to cause offense. large extent a product of their nascent industry, And while the amount of work required to gain eager to see you do it which has fewer protocols in place to address credibility is wearing, once it is achieved, women equality. The expectation is that this will change feel that the value and outlook they bring to again and forget you as more women flood into the entry levels of the funds and management are a unique asset. are wearing a bra” financial services sector, taking up positions as “Women tend to be more intuitive of other analysts and associates before slowly graduating people than men,” the Asia-based GP describes – Lisa Suennen to higher ranks. as one way women can make a difference. “That In the meantime, Psilo’s Suennen suggests makes women better at relationships, which is that female PE professionals forget about gender very conducive to the LP-side of things.” offices, and they’re actually some of our best- and get on with their jobs. “Don’t be afraid to In terms of LPs, Jason Sambanju, co-head performing funds,” Sambanju says. He adds hang with the guys on their terms, put your head of Paul Capital in Asia, says that a GP’s returns that approximately 25% of Paul Capital’s own down and deliver. Find a mentor or colleague are far more important than the gender of the investment staff is women, largely on the more that is gender-blind and perform the hell out person running the fund. Due to the low female junior side of the spectrum for the time being. of your job,” she says. “When you produce cash representation among Asia’s GPs, Paul Capital Another Asia-focused LP has a somewhat returns to investors, they are eager to see you do hasn’t invested in many funds run by women. different view. Based on his experiences in it again and forget you are wearing a bra.”

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Please contact our RegistRation enquiRies: Anil Nathani sponsoRship enquiRies: Darryl Mag Please contact our RegistRation enquiRies: Anil Nathani sponsoRship enquiRies: Darryl Mag Project team for: t: +852 3411 4938 e: [email protected] t: +852 3411 4919 e: [email protected] Project team for: t: +852 3411 4938 e: [email protected] t: +852 3411 4919 e: [email protected] For the latest agenda and confirmed speakers, please visit www.avcjjapan.com For the latest agenda and confirmed speakers, please visit www.avcjjapan.com Focus [email protected] Funds monetize Japan’s aging demographic Retirement homes and related services have emerged as a hot spot for private equity in Japan’s generally uninspiring consumer market

Japan may be the world’s second- has been investing in this asset class since 2005, rise in Japan’s senior citizen demographic. J-Star largest economies but, by Asian standards, it executing transactions with an average ticket size entered the deal with a view to expansion. is also one of the most mature. GDP growth is of $30-40 million. Composition Capital’s Japanese In 2008, another significant transaction was lackluster and the consumer market is pedestrian investments are made in partnership with local The Carlyle Group’s $130 million investment compared to those of the region’s emerging firms, which it does not name. in Goodwill Group, which owned real estate nations, which are still driven by urbanization, The firm has a particular sweet spot within assets in an up-market residential area in Tokyo. industrialization and young demographics. the senior residential market: residencies that That same year, mid-cap focused buyout firm “Invest in Japan? No, we are focusing on are operated as a chain business and that J-Will Partners purchased Bon Séjour, which was China and India at the moment; Japan’s economy sold on two years later to Benesse Corporation is no longer growing,” is one global LP’s withering for JPY4.3 billion ($54.8 million). Asian Capital assessment. Alliance has also launched a specialized fund Although Japan’s economy has been on the dedicated to investments related to senior slide for the past decade, there is one pocket of homes and Japan’s healthcare sector. vibrant growth: the country’s aging population. Japan is the world’s fastest-aging market – 14% Older and poorer? of its population is 65 or above, up from 7% of its Japanese politicians are currently immersed population 24 years ago. France, another rapidly in debates on pension reform, asking whether aging country, took 115 years to reach that 14% these programs can stretch far enough to meet mark. the needs of an aging population. It has been suggested that the government increase the Don’t miss the boat monthly allowance senior citizens receive for Opportunities tied to this demographic are healthcare and insurance payments. This may in abundant, and funds that exclusively target turn allow retirement home chain operators – emerging markets with high GDP growth look which are currently run on a shoestring with all set to lose out on it. Some, though, have taken Private equity sees opportunities in Japanese income directed to core operations – to improve notice and responded by broadening their retirement homes their services. healthcare mandates. Hirotaka Uchiyama, managing director of Earlier this month, Amsterdam-based offer clear exit opportunities through industry CLSA Capital Partners in Japan, has met with Composition Capital Partners, acquired an consolidation. these concerns first hand during his time spent undisclosed stake in a senior residential asset in One Tokyo-based lawyer notes that housing managing Fudo Capital, CLSA’s real estate fund. Japan. The move surprised the country’s private for the elderly is not yet a major target trend As the cost of independence rises, Uchiyama equity industry as this space has so far been for real estate investors, although this may well expects demand for nursing homes to increase dominated by local players. But the European change. Services related to aging, meanwhile, and foreign interest in the market to deepen. fund knew it had identified a profitable niche. have seen some activity. As the industry matures, However, he warns that that investing “Japan’s senior residential assets make stable it’s possible that strategies will become even in elderly residential homes comes hand in rental income and investment risk is low,” says more refined, for example targeting shopping hand with key operational risks, namely failed William Shaw, Asia director and principal at services for those with limited movement and payments by tenants. Composition Capital. He adds that these assets specialized outpatient clinics. “Nursing homes maintain cash flow through are often mispriced and can be purchased at a One firm that has ventured into this residence rental income from tenants, who depend on their discount. space is Tokyo-based J-Star, which acquired retirement funds to pay their bills,” Uchiyama says. Composition Capital currently manages nursing home and senior-care operator HCM KK “If tenants are for some reason unable to make a $171 million Asia fund that is nearly fully in April. At the time, George Hara, director and their monthly payments, what will happen to invested. A second fund is set to follow and it president of J-Star, told AVCJ that healthcare and that person? Are they going to be kicked out? I will likely target more senior residential assets. senior care-related businesses are among the do not think that our culture allows us to do this This conforms to the firm’s global strategy: it firm’s core targets because of the continuous for older people.”

12 avcj.com | July 26 2011 | Volume 24 | Number 27 deal of the week [email protected] / [email protected] Hony makes first foray into Japan

Hony Capital secured two Tokai Kanko and Galaxy Godo Kaisha are both agents via FECI,” he explains. significant firsts with its purchase of a 20% stake interested in hotels and related assets. The link The company’s first acquisition reflects this in Tokyo-listed hotel chain operator and real with Hony can be traced back to a longstanding investment philosophy. Tokai Kanko has agreed estate business Tokai Kanko for JPY1.4 billion business relationship between Hoong Cheong to purchase a 60% stake in Agora Hospitalities, ($17.8 million). This is the Beijing-based private Thard, a senior manager at FECI, and John Zhao, which manages the 175-room Moriguchi Royal equity firm’s debut investment overseas and Hony’s founder and CEO. Pines Hotel in Osaka, not far from Kyoto. also the first time it has ventured into real estate. “Both [Hoong and Zhao] are interested in According to analysts, a number of real estate The transaction will be executed through Hony investing in Japanese hotel businesses because assets in the hospitality industry have been Capital Fund 2008, LLP. of growing demand from Chinese put up for sale – often at steep Tokai Kanko, which has close ties to tourists,” says Sataro Shishido, discounts – in response to falling Hong Kong-listed real estate investment COO of Tokai Kanko. consumer demand. “We have and development firm Far East Consortium With this in mind, Tokai been offered a number of assets, International (FECI), will use the funds to pursue Kanko’s primary geographic and we think that we will need to real estate acquisitions in Japan. The investment target is not just Tokyo, but also launch another fund quite soon,” is part of an alliance through which Hony, FECI Osaka, Kyoto, Kyusyu, Okinawa, Shishido adds. and Tokai Kanko will also create a separate fund and Hokkaido – all of which are Tokai Kaiko was owned by worth JPY6.75 billion. popular among Chinese visitors. Tokai Kanko’s latest buy, the Seison Group, an affiliate of The Chinese firm and David Chiu, a senior Shishido notes that business Moriguchi Royal Pines Hotel Seibu Group, until 1997, when executive at FECI, will between them inject hotels with between 200 and 300 it was purchased by Asia Land, JPY5.4 billion into a special purpose vehicle, each rooms are the most attractive properties. a company controlled by Chiu. Chiu’s father is taking a 40% stake. Tokai Kanko has committed “We need accommodation with the capacity the majority owner of FEIC and other real estate to provide the remaining JPY1.35 billion in return to host tour groups from China, Malaysia, companies. Tokai Kaiko currently runs two resort for a 20% holding. The vehicle will be managed Indonesia and Taiwan, where the company has hotels in Japan, and one each in Australia and by Galaxy Godo Kaisha. already built up a client base with local travel Malaysia. It also operates cemeteries. Blackstone closes in on third India power deal

In August 2010, Akhil Gupta, in Chhattisgarh, which is said to rely on a captive $129 million to the first phase of one of MBPP’s chairman and managing director of Blackstone coal mine for much of its fuel, thereby minimizing thermal energy projects. India, said the private equity firm “would not costs. It also has 6,600 MW of capacity under Statements issued by Moser Baer, Blackstone hesitate” to invest $1 billion in the country’s development, including a 1,320 MW coal-based and Macquarie all highlighted India’s energy power sector if attractive deals presented super critical plant in Orissa. shortages and the opportunities this offers to themselves. Reports added that the timescale for The power sector fits in well with Blackstone’s external investors. Power demand is growing at these investments would be stated objective to target 6-7% a year and the country is already grappling three to five years. opportunities related to with a 10% base load and a 13% peak load deficit. This week Blackstone is infrastructure development and In late June, the Indian government expected to close its third deal domestic consumption in India. finalized the broad structure for an $11 in the sector in 15 months, Last July, the private equity firm billion infrastructure debt fund. The fund’s with total expenditure paid approximately $60 million responsibilities would include plowing already reaching $500 million. for a 12.5% interest in Monnet much needed capital into the power sector According to reports, the Power, an independent power by supporting the construction of power- firm has signed a definitive producer with a 1,050 MW plant generation facilities as well as helping existing agreement to pay INR500 backed by captive coal reserves energy companies boost capacity. The crore ($111 million) for a 25.2% India faces a power deficit in Orissa state as well as 2,000 government wants to attract long-term investors stake in Visa Power, the power MW in other thermal projects. domestically and overseas. generation arm of Kolkata-based conglomerate It followed up one month later with a $300 According to Gautam Bhandari, head of Visa Group. million investment in Moser Baer Projects Private infrastructure investment at Morgan Stanley The deal, for which JM Financial is believed (MBPP), which plans to commission 4,000 MW of India, $1 billion can fund 1,200 MW of power. But to be the sole advisor, is the culmination of thermal power, 500 MW of solar and 500 MW of even if the entire fund was devoted to energy discussions stretching back more than a year. Visa hydro capacity by 2016. In January of this year, projects it wouldn’t solve “one-sixth of the Power’s core asset is a 1,200 MW coal-fired plant Macquarie SBI Infrastructure Fund committed problem.”

Number 27 | Volume 24 | July 26 2011 | avcj.com 13 Analysis [email protected] Is China pushing VCs out of third-party payment? New regulations on foreign participation in third-party payment in China have called seemingly safe investment structures into question

Jack Ma is every bit the internet market share. By 2014, the market is expected to foreign ownership of financial institutions to pioneer. In Alibaba.com, he created China’s be worth $636 billion. third-party payment providers. leading business-to-business trading platform; This rapid growth in transactions, which is According to people familiar with the Taobao swept aside eBay to become the taking place outside the formal banking sector, situation, companies are broadly following one number-one auction website; and the launch of caught the attention of the People’s Bank of of three strategies: working with their foreign Alipay, a third-party payment service, plugged China (PBoC). Last year it announced that all investors to find an alternative solution to the a hole in the e-commerce market. Last year, participants would have to apply for licenses, VIE; terminating the VIE contract and offering Ma added a less savory line to his resume: he and that those with foreign investors would be to compensate their backers at a later date; or became the first Chinese CEO to break a variable subject to separate review. The first round of telling investors that the contract is null and void interest entity (VIE) contract, the structure licenses was issued in May, with 27 companies and therefore no money is owed. through which foreigners invest in certain kinds making the shortlist, including some that Apparently negotiations between Alibaba, of Chinese companies. have in the past received foreign capital. Up Yahoo and Softbank are ongoing. It has Ma’s actions, which only became public to 30 more approvals are expected before the separately been reported that Lakala has bought in June, were intended to offset regulatory implementation deadline on September 1. back shares owned by Morningside Ventures concerns about foreign involvement in China’s third-party payment industry. He did this by transferring ownership of Alipay from Alibaba China's third-party payment industry by market share, 2010 Group to a domestic firm of which he is the majority shareholder, thereby removing the subsidiary’s exposure to the VIE that secures Yahoo and Softbank’s financial interest in the parent company. The foreign firms opposed the Alipay 50% move at board level, saying it rode roughshod Tenpay 20% over their investment agreements. 99bill 6% This apparent violation of shareholder rights ChinaPnR 6% and fiduciary responsibility sets a worrying ChinaPay (Shanghai) 4% precedent for venture capital firms that have YeePay 4% backed third-party payment providers – and also ChinaPay (Guangzhou) 4% for those that invest through VIEs in general. IPS 4% “GPs tell LPs that there is a potential total Other 2% loss scenario, which creates a wave of panic,” Source: iResearch says Rocky Lee, managing partner for Asia at Cadwalader. “This is what gets me on the phone at 2 a.m. talking to LPs and funds in California. The PBoC has also indicated that foreign and other overseas investors. And sources tell These guys may have 50 other portfolio control over these companies will not be AVCJ that local renminbi funds are buying into companies with VIEs.” tolerated, either directly or indirectly through companies, trying to cherry pick those that are VIEs. “I believe the reason they are focusing on likely to receive licenses. Market leader third-party payment is because it relates to the DFJ DragonFund China has invested over $5 Alipay is without question the dominant force in banking system,” says David Wang, a partner at million in YeePay, which claims to be the largest China’s third-party payment market, having been Paul Hastings in Shanghai. “They are not ready for independent third-party payment provider, introduced in 2005 to support Taobao users. It foreign investors to be controlling that aspect of since 2004, accounting for roughly one-fifth of accounted for just over 50% of the $156 billion the financial services sector in China.” total funds raised by the company. Tony Luh, in transactions processed by all service providers The approach is not altogether surprising. managing director at DFJ, says the situation has last year, according to iResearch. Tenpay, owned Given that PayPal falls under the remit of been discussed but there are as yet no plans to by internet platform Tencent, is second on 20%, America’s banking regulators, it is understandable sever ties. while no other competitor has a double-digit that China might want to extend its cap on “The whole thing started with the Alibaba

14 avcj.com | July 26 2011 | Volume 24 | Number 27 Analysis [email protected]

situation and their structure is a lot more industries to foreign investment, but not all. Class Industry and Information Technology last issued complicated than ours and they have well known One telecom assets – networks and carriers – one of these to a foreign-invested entity over six stakeholders in Yahoo and Softbank,” Luh tells were deemed off limits due to national security years ago and hasn’t shown any indication that it AVCJ. “To us, it is business as usual – it’s like you concerns. However, Class Two assets, such as the will start doing so again. hear an air raid siren on once in a while and then internet and related services, were subject to less everyone senses things are normal.” rigorous oversight and a revised version of the The bigger picture CCF emerged. Two years later, web portal Sina Such issues are likely to be resolved in due course, Mode of entry listed on NASDAQ through a VIE structure. but it remains unclear what scars they will leave DFJ’s investment in YeePay has always been “The government was very particular about on the VIE structure in general. Wang of Paul channeled into the company’s offshore entity who could invest and where they could invest,” Hastings insists that the restrictions are specific domiciled in the Cayman Islands. In ordinary Luh says. “That is why you have the Sina model to third-party payment, but Lee of Cadwalader is circumstances, an entity such as this would – it really started the wave of foreign investment more circumspect. He notes that permission to operate in China via a wholly foreign-owned enterprise (WFOE), with profits transferred back China's third-party payment industry by market size to Cayman as dividend payments. However, direct foreign ownership is not permitted in 636.3 China’s internet industry – where, until the PBoC’s intervention, third-party payment providers were 501.3 deemed to operate – so a structure was created in 384.9 parallel to the WFOE under VIE rules. The structure 266.9 is owned by Chinese nationals, which means it US$ billion is allowed to hold the relevant business licenses 156.8 but does little else. The relationship between the 78.4 40 WFOE and the parallel company is based on five legal agreements that are intended to secure the 2008 2009 2010 2011* 2012* 2013* 2014* former’s economic interest in the latter. Source: iResearch * Estimate Cadwalader’s Lee notes that VIEs are essentially a standard by which financial statements are constructed and there are as in Chinese companies.” He adds that DFJ even create a VIE is dependent on particular regulatory many imperfect structures as there are workable uses VIE structures for transactions in areas where bodies and that third-party payment companies ones. Classic flaws include a failure to comply foreign ownership is not deemed sensitive. only ran into trouble when the PBoC decided that with Chinese laws designed to prevent illegal Questions have been raised as to whether the their activities encroached on the banking space. round-trip investing and a failure to comply VIE structure would stand up if tested in court. It is conceivable that ownership reviews could with rules governing tax, foreign exchange and Difficulties have also presented themselves when take place in other industries. M&A – or just a failure to inform the Chinese the Chinese national who owns the license- “For the internet, it’s pretty clear that VIEs are government of what is going on. holding firm departs from the official company permitted – it’s only when you go into a new The genesis of the structure can be traced without transferring his interest. This happened industry that there are potential problems,” Lee back to the China-China-Foreign (CCF) model in 2001 when Wang Zhidong was fired from Sina says. “Education is the next potential blow up. through which foreign telecom operators made and a similar scenario appears to have emerged We can’t be sure what the Ministry of Education’s their doomed efforts to enter China in the this year at GigaMedia. response will be to venture capital moving from mid-1990s. China Unicom, in need of capital to The implications of the revised approach to vocational certificate education into secondary build out its network, invited the foreign firms to third-party payment companies are wider but principal education. It might come out one day and say you can’t do it.” Lee adds that his firm is already working on “GPs tell LPs that there is a potential total loss solutions to the VIE problem that are intended to operate independently of the regulators and lock scenario, which creates a wave of panic. This is in investors’ economic position. He envisages a what gets me on the phone at 2 a.m. talking to new structure that co-exists with the VIE or acts as a backup to it. LPs and funds in California” – Rocky Lee Until such a model launches, venture capital firms are wedded to VIEs – and the tax liability protection and offshore structuring involved – form joint ventures with third-party companies all is not lost. Foreign direct investment is not and neither Luh nor Ian Goh, a partner at Matrix tied to its subsidiaries. The foreign telecom firms completely outlawed in China’s banking sector Partners, say their firms are scaling back exposure were given proxy control over the joint ventures, – although it prefers investors to be banks – so to the structure. “It’s always a possibility that it will which were then contracted by China Unicom to it is possible that the PBoC will accept venture run into trouble,” says Goh. “The VIE allows you provide services. capitalists as small minority investors (minus the to list and fundraise, but does it enable you to Beijing unilaterally cancelled the agreements VIE structure). However, the payment company enforce shareholders’ rights? There have always in 1998, arguing that China’s WTO accession would still need to an internet content provider been some issues but the Chinese government obligations required it to open up some (ICP) license to do business. The Ministry of will resolve it one way or another.”

Number 27 | Volume 24 | July 26 2011 | avcj.com 15 SAVE UP TO USD500 by 9 sept 2011

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