Malaysian private equity (PE) firm Creador is set to invest in a Philippine-based digital bank as it looks to clinch some new economy assets.
The deal will be announced shortly, Brahmal Vasudevan, founder and CEO of Creador, told DealStreetAsia in an interview.
“We haven’t done many tech investments so far, because there were not that many good businesses in the region,” said Vasudevan. The firm is scouting for assets in the digital space, among other sectors, across the region.
Vasudevan believes digital banking will be the next big thing, especially in the emerging markets in Southeast Asia such as Indonesia, Vietnam and the Philippines, where banking penetration is low. Other areas include ride-hailing and e-commerce, which have been successful themes in the US and can be replicated in Asia.
PE investors have so far been rather cautious while assessing tech deals. As Vasudevan pointed out, as the new-age tech ventures get to a larger size, “the valuations are crazy”.
“There has been some over-excitement in the space. Unless these companies can really deliver revenue growth and profit expansion, you’re going to see some major setbacks over the next few years,” he said, adding that Creador’s tech investments will be made opportunistically.
Fundraising on track
In July, Creador hit the first close of its fifth fund at around $500 million. The firm expects to make the final close at a hard cap of $680 million next month, said Vasudevan. This is even as the firm is said to have seen demand worth $800 million.
With the digital bank investment in progess, Creador’s fifth fund has committed about $200 million in four deals. Most recently, in August, the fund pumped in $73 million in Indian quick-service restaurant operator Sapphire Foods.
To ensure a compelling portfolio performance, Creador’s strategy is to keep fund size at a level that is not too big.
Creador has committed about $1.4 billion of capital, and has delivered the same amount in terms of exits over the last 10 years. “That is on the back of a gross IRR of 26%,” Vasudevan said.
He asserted that entry multiples in Southeast Asia have generally been too high, resulting in overall poor performance compared to the expectation. Creador, on its part, is particularly cautious about the entry multiple, said Vasudevan.
“I think LPs have been disappointed with the returns and realisations in Southeast Asia. If you talk to LPs in the US, they know what they can get in the US. Why should they come all the way to Southeast Asia?”
Meanwhile, LPs that already have had exposure to the region tend to do re-ups with their existing managers.
“It’s going to be very difficult for a new entrant to enter the private equity space,” Vasudevan expressed.
Vasudevan left ChrysCapital and founded Creador in 2011, and chose Malaysia as the firm’s home base.
“First, it’s where I grew up,” he said.
Creador has deployed almost 35% of its capital in Malaysia, which – according to the CEO – is a “significant” allocation.
“If you’re going to invest in Southeast Asia, you need to be in the operating markets,” Vasudevan said, dismissing beliefs that financial investors need to be based in the region’s financial hub – Singapore.
Apart from its headquarters in Kuala Lumpur, Creador has offices in Jakarta, Ho Chi Minh City and Manila in Southeast Asia.
Creador made headlines with the successful IPOs of two portfolio companies, Mr DIY and CTOS Digital, which paved partial exits for the firm. Mr DIY has more than doubled its market cap since the October 2020 debut, while CTOS share price has grown about 18% since its maiden day of trading on July 19, 2021.
Even as the proportion of IPO exits in Southeast Asia remains low, Vasudevan said there is no problem of liquidity in the market. Rather, there are not enough growth stories coming to the market, he said.