Its participation in the largest round ever raised by an Indonesia startup is yet another instance of Warburg’s rising focus on Asia’s private equity market. Warburg is no stranger to the region — it has been active since 1994, when it was among the first global PE firms to set up an office in Hong Kong.
Jeffrey Perlman, a Warburg Pincus managing director, and Head of Southeast Asia, said in a chat with DEALSTREETASIA that Indonesia’s rising middle class and digitization, and Vietnam’s high rate of growth present the best opportunities for PE funding in the SEA region. All the investments are coming from Fund XII, which closed at $12 billion in November.
Since its founding in 1966, Warburg has raised 15 PE funds and invested more than $55 billion in more than 750 companies in 40 countries. Since entering Hong Kong, it invested $10 billion in about 140 Asian companies in the region.
Warburg is present in three main markets, viz., Vietnam, Indonesia and Singapore, one of the few PE funds to have done that. It recently set up office in Singapore — its ninth in Asia managed by Perlman, who was earlier based out of Hong Kong. Apart from Go Jek, he has led investments such as Vincom Retail in Vietnam and PT Nirvana Wastu Praam in Indonesia. Both firms aspire to create a leading retail platforms in their respective markets.
Perlman is also a speaker at the inaugural DEALSTREETASIA-Mint Asia PE-VC Summit on September 30.
To know more about the agenda for the Summit, click [here]
Q: Warburg has been active in Asia since 1994. In which ways has the investment landscape changed for you?
Private equity was a novel concept in Asia, especially in China and India back in 1994 when we first started looking at these two major Asian markets. Through the years, both the private equity industry itself and entrepreneurs have matured and evolved significantly. The market has also become more competitive and professional with a number of local PE/VC funds coming on to the scene along with all the major international players who have been present now for an extended period of time. As one of the earliest private equity entrants into the market, we are very well positioned to leverage our track record, resources and local teams across the region to identify and execute attractive investment opportunities.
The PE market in Southeast Asia is still in a nascent stage and entrepreneurs are relatively unfamiliar with PE. The majority of foreign PE firm peers have not done much to date in this region and Warburg Pincus is one of the few firms who has completed sizable deals in more than one market (Vietnam, Indonesia and Singapore). Given the region’s overall size, attractive demographics and lack of intense competition (at least to the degree we have witnessed in other geographies), we are excited about the opportunities ahead of us.
Q: Some countries such as India and Indonesia, where you have invested in Go-Jek, are infamous for being too bureaucratic which slows down decision making. Do you see the situation easing in these countries, and are they becoming friendlier to PE investors?
Given the importance of driving sustainable economic growth in markets like India and Indonesia, government officials are working actively with investors to try and cut some of the “red tape” for many sectors that has slowed investment previously. Between PM Modi in India and President Jokowi in Indonesia, both leaders appear to understand the role and importance that investors can play in helping to build a stronger and faster growing economy that benefits an emerging middle class.
To see confirmed speakers for DEALSTREETASIA & MintAsia PE-VC Summit, click [here]
To know more about the agenda for the Summit, click [here]
Q: With Go-Jek, you ventured outside the areas that Warburg has traditionally invested in. Can we expect more investments from Warburg in similar disruptive tech in Asia?
Go-Jek is the first TMT investment we made in Indonesia but we have a successful history of investing in technology companies in China,India and the US. This includes China’s largest online classified platform (58.com) and India’s equivalent (Quikr), online recruitment platform Liepin.com, online second-hand car marketplace Uxin and a mobile-based chauffeured car service provider UCAR to name a few. Many Chinese and US tech business models are now being exported to other emerging countries, in particular Southeast Asia. Our investing experiences especially in China and India position us well for these opportunities in Southeast Asia.
Q: Southeast Asia has lagged way behind India and China in terms of PE deal value and count. That’s despite having higher income levels in the major cities. Do you see SEA emerging as a stronger region, or will they find it hard to close the gap because each country in SEA represents a small market and is different from others?
Southeast Asia has significant potential and we see a lot of opportunities in this region for growth investors willing to make a long-term commitment. The investment themes, including rising urbanization and an emerging middle class, are very similar to what we have played in China and India but the key is to understand whether the opportunities are large and scalable enough for a given country (or whether it needs to be evaluated as a regional opportunity).
Q: Which nations are you most bullish on with respect to PE investments for the next year?
Our focus in Southeast Asia will continue to remain disciplined and focused on emerging markets like Indonesia and Vietnam. Indonesia has the world’s fourth-largest population, a middle class that will double in size over the next 5-10 years and is rapidly becoming a digital nation. The rapid urbanization is spreading into 2nd and 3rd tier cities and consumption has a lot of room to run across the archipelago.
Vietnam is a sizable growing economy in Southeast Asia with favorable long-term underlying fundamentals, such as its demographics, fast-growing economy, growing middle class and rising urbanization. In many ways, Vietnam’s economic rise has similarities to China 7-10+ years ago (especially as it relates to high levels of urbanization and an emerging class) and WP will seek to capitalize on many similar investment themes and opportunities.
Q: Warburg is among PE firms that have invested a cumulative $12 billion in China’s logistics sector. But too many warehouses is putting a downward pressure on rents, and land is more difficult to come by as more players emerge. How do you see the potential of the sector going forward?
We continue to believe that logistics is one of the most attractive sectors across Asia. Chinese e-commerce is already a $400bn market and it has now eclipsed the U.S. ($330bn) in size. By 2020, it is expected to reach $1.3 trillion, almost twice the size of the U.S. market then. Warburg Pincus is one of the earliest PE investors in the logistics warehousing sector with its co-founding of e-Shang (currently e-Shang Redwood Group or ESR) which now has over 5 million square meters of warehousing space owned and under development across China, South Korea and Japan (which represents over 60% of GDP in Asia). Although we have witnessed an influx of capital and players into the logistics sector in markets like China, we believe there is still a great need for modern warehousing to match the strong demand of the fast-evolving e-commerce industry and to address the chronic lack of modern supply in most major cities.
To register for DEALSTREETASIA-Mint Asia PE-VC Summit on September 30, click [here]
What are the main challenges facing companies in Southeast Asia which stand in the way of them scaling up like their Chinese counterparts?
Each country in Southeast Asia has their own distinct characteristics and challenges vary by market. We believe local innovation and access to capital are both key for businesses to unlock the growth potential in their respective market. Go-Jek is a great example – this is a company that was started by a best-in-class team of local entrepreneurs who have turned traditional transportation, foodservice and payments on their head with its innovative on-demand mobile e-commerce platform. Given this dynamic platform, the company was able to raise substantial capital from investors which has transformed it into the leading ride-sharing, food delivery, logistics and e-money platform in Indonesia. The other major issue is finding the necessary management talent which is always a challenge in emerging markets.
How can Southeast Asian nations make it easier for firms to raise private equity funding? What regulatory or policy changes would you like to see?
Unfortunately, some sectors are restricted from accepting foreign investment in several key markets in Southeast Asia and that would require some continued changes from policy makers. We are starting to witness a further “opening up” of several investable sectors in Southeast Asia which seems to be a positive trend with the recent changes in leadership in countries like Indonesia and Vietnam.
Are you planning to raise a fund that would invest exclusively in Southeast Asia?
We invest from one global fund although we have raised a few companion funds in the past. Investments in Southeast Asia will continue to come from our global fund, now Fund XII, which was just closed in November 2015. Warburg Pincus is well capitalized and we have a lot of dry powder to deploy in the region.