Private equity player COPE plans to diversify LP base beyond Malaysia

Dato Azam Azman, COPE's Managing Director.

Malaysia-focused private equity firm COPE (formerly known as CMS Opus PE) plans to diversify its base of investors or Limited Partners (LP) to foreign institutional investors in addition to the present cohort of local LPs.

Currently raising its fourth fund, COPE Opportunities 4, that was launched in 2016, the PE firm is expecting to make the final close for the $76 million (MYR 300 million) fund by the end of third quarter this year. Having made a second close at $70 million this January, the firm appears to be have taken longer than expected to close the vehicle.

“Fundraising for COPE 4 took a while as it is a MYR domestic fund with only local LPs. We consider this a feat as Malaysian LPs are starting to be more receptive towards private equity as an asset class,” Dato Azam Azman, COPE’s Managing Director told DEALSTREETASIA in an interaction recently.

Azman, however, added that going forward, the private equity firm plans to diversify its LP base to foreign institutional investors. “With the track record and team assembled, we are working towards achieving that,” he said. The firm also has Malaysian state-owned private equity firm Ekuinas as one of its investors and believes the later’s ‘seal of approval’ provides a positive signal to other LPs.

Edited Excerpts:

As a firm which is over a decade old, you have recently changed your name. Is there a reason behind it? Does the change of name also reflect a change in your vision or focus areas now as a private equity firm?

We wanted to re-brand for two reasons. Firstly, to align the name of our firm with the name of our funds – all of them are named COPE opportunities x (x being the number of the fund). Secondly, to distinguish our firm from Opus Asset Management, a sister company specialising in fixed income investment.

As an arm of a well known Malaysian construction and property development company Cahya Mata Sarawak (CMS), do you believe you are able to leverage on the network and experience of the parent firm and how?

CMS is a shareholder of COPE and the management of the firm is by COPE Capital Partners.

COPE has been known as a Malaysia-based investor with most investments in Malaysian companies. Would you continue to be a Malaysia-focused investor in future or look at ASEAN as a region for making investment bets? If yes, which countries would be bullish on in the region?

Whilst we invest primarily in Malaysian companies, most of our investee companies have significant exposure to the regional and international market. Due to the limited size of the Malaysian economy, businesses have to grow outside the country in order to thrive. Over the years, COPE Private Equity has assisted a number of investee companies to do precisely that by assisting on key hires, securing trade and working facility, and developing a ‘fit for purpose’ managerial information system (ERP).

The firm has the backing from Ekuinas. Does that help while fundraising for your vehicles? How has the fundraising experience for you been in the recent period? Also, where is the LP base largely from — Malaysia, Asia or outside Asia? What is the ratio of local vs foreign investors?

We are proud to count Ekuinas as one of our investors and believe their ‘seal of approval’ provides a positive signal to other LPs. Fundraising for COPE 4 took a while as it is an MYR domestic fund with only local LPs. We consider this a feat as Malaysian LPs are starting to be more receptive towards private equity as an asset class.

Looking forward, we plan to diversify our LP base to foreign institutional investors. With the track record and team assembled, we are working towards achieving that.

Serba Dinamik was a good exit through an IPO for the firm. Other than that, in the past, how have exits been for you? There are typically complaints about how difficult the exits can be in the region.

Serba Dinamik has been a fantastic exit for us. It gives us pleasure that the company is growing from strength to strength after our exit, which demonstrates that the work done in building up internal systems and platform are robust enough to outlast our involvement.

In 2017, we exited from Delta (a subsidiary of Swift Haulage) at an opportune time where the company was growing to become a much larger entity. Our exit was timed to allow a strategic buyer to participate in Swift’s next wave of growth. Most of our other exits have been via trade sale to strategic buyers or owner buybacks. As we hold a minority stake in most investments, any exit will be done in coordination with the majority shareholder(s).

What are the sectors that you are bullish on when it comes to making private equity investments? Also, what is your primary focus when you look at a probable investment?

There has been a whirlwind of change in the overall economy, geopolitics, technology development and lifestyle. In view of this, we believe that sectors that continue to fulfil ‘consumers’ needs’, such as energy sector, health, education, food production and the peripheries such as medical devices, maintenance engineering services that support the sectors’ eco-systems will continue to dominate growth.

When we look at a probable investment, we look for people who are honest, capable, credible, hungry and open to new ideas. Honesty and integrity are vital as all of our LPs are institutional investors. We prefer to work with founders who not only have proven themselves but also hungry to grow their company to the next level, into a regional/global player. Finally, we look for founders who are open to new ways of doing things. This way, we can have an active and genuine partnership with the entrepreneur. The thing about having the right ‘chemistry’ is also important, we can minimise a lot of issues if the chemistry is right between the entrepreneurs and us.

The fourth fund was a Shariah-compliant fund. Are all your funds Shariah-compliant? Would you continue to have Shariah-compliant funds? How does that impact your position as a fund when compared to other PE funds in the market that may have more flexibility in terms of investments?

Other than our first fund, all other funds are Shariah-compliant. We are proud that one of our Shariah funds, COPE Opportunities 2, has been identified by Preqin as being (among) the top 5 Best Performing Growth Funds globally in 2017.

We see many similarities between the Shariah approach and the growing LP focus on having good ESG investment policies. For example, we do not invest in gaming, alcohol, tobacco and defence-related companies. Other than that, we also do not invest in conventional banking and insurance. From our experience, we do not think that making Shariah-compliant investments affects our ability to deliver consistently good returns to our investors.

How has the LP-GP dynamics changed for you over the past few years? Have the expectations of LPs, even in Malaysia, changed in terms of returns on the investments and also how involved they are in investment decisions?

The understanding and appreciation of PE as an asset class among Malaysian LPs has improved over the past few years, with the more seasoned ones investing in foreign GPs. We also see bigger LPs increasingly seeking co-investment opportunities, understandably due to the attractive economy and also the ability to control the pace of asset deployment.

Can you tell something about your investment pipeline right now? What is the number and approximate value of each investment that you may be considering? 

Thanks to our long presence in the local PE scene, we have a rich investment pipeline with companies in the F&B, healthcare, consumer products and education sector. For COPE 4, we target investments of between MYR40-80 million ($10-20 million) – a level below the typical ticket size of the big boys at more than $50 million.

Also Read:

Malaysia’s COPE raises $70m, nearing $76m target for latest fund: Report

CMS Opus Private Equity rebrands as COPE Private Equity

Malaysia: COPE Private Equity exits Serba Dinamik