Malaysian private equity (PE) firm Creador has held the first close for its Fund III, at $250 million, and this development took place in mid-July this year, an executive with the firm said. The fund has so far not made any announcements on achieving the first close for this fund.
The executive added that Creador’s third fund, which was launched in April, was likely to reach its final close by the year-end.
“Creador is looking to raise $450 million in capital, expecting to wrap up by the end of this year,” this executive added.
DEALSTREETASIA earlier reported that Creador’s Fund III would have a target corpus of $450 million, with a hard cap at $500 million.
In layman’s terms, ‘first close’ means the fund has reached a certain threshold in terms of the amount raised and it can begin making investments and close deals, even as new Limited Partners (LPs) can continue to join it. A final close implies reaching the second threshold, with no LPs able to join after this point.
Creador CEO Brahmal Vasudevan had told DEALSTREETASIA on the sidelines of the World Capital Markets Symposium 2015 last week that the firm was close to sealing two deals in Indonesia this October.
“We still have a little bit of money left in Fund II, so we are closing two investments in October. Once these two deals are completed, we still start deploying Fund III,” he had told DEALSTREETASIA.
He added that the firm expects to close its first deal under Fund III sometime within the fourth quarter this year or the first quarter in 2016.
Vasudevan also said that there was no change in Creador’s investment strategy, which involved primarily targeting Indonesia and Malaysia in Southeast Asia, and India.
A portion of its Fund III will be diversified into the Philippines and Sri Lanka, he said. “We are adding the Philippines and Sri Lanka into Fund III, but they will be no more than 10 per cent of the fund because they are new markets,” he added.
Creador’s Fund III was launched just eight months after the final close of its Fund II, but Vasudevan said the firm had no plans to launching another fund soon.
“Maybe in another three years, realistically, our target is to invest over three to five years,” he said, Fund III being the biggest fund the firm will raise.
As for sectors the firm is interested in, Vasudevan said the team would be evaluating opportunities in healthcare, consumer goods and business services. “What we tend to avoid are cyclicals and commodities.”
Series B or C play
With the plethora of startups maturing in the markets, Creador may just look at smaller companies, a hairline shy of the middle market level.
“One area we could potentially look at would be in the Series B and C stage, where the concepts have been proven and these companies need capital for growth,” Vasudevan said.
He also emphasized that Creador does not have the appetite for anything smaller than those ticket sizes.
Explaining the reason, he said: “When you put a fund together, typically you are looking to have a construct of 10 to 12 investments under it to create the diversification and so on. If you have a fund size of $500 million, on average you will need to do $30 million to $40 million per deal. If we do small deals, it is generally harder as we will need so many more deals and will end up spreading our management bandwidth too thin.”
Creador typically writes cheques of $10 to $50 million per company.
Although established as a private equity firm, Creador’s portfolio also includes public-listed companies which it has not taken private. Two-thirds of Creador’s investments are minority investments while the firm controls the rest of its portfolio.
Vasudevan said the firm’s portfolio is about half private company investments and half public equity investments.
Creador is in no hurry to divest from its Malaysian investments yet, as it looks at a five to six year horizon for its portfolio.
When posed a question about the challenges for foreign investors in the India market, Vasudevan was of the opinion that the South Asian market was resolute.
Vasudevan added that Creador’s pedigree was in India, him having been the general partner and managing director of India-based ChrysCapital managing $2 billion in capital, prior to founding Creador.
“When you look at a market like India, you cannot bring a US-style private equity to play,” Vasudevan explained, “PE firms cannot bring control investments into India; it’s not a control market, it’s a largely a minority market.”
What works for Creador is that it finds successful entrepreneurs and provide them with growth capital. “The country is growing, the companies are doing well, the family of entrepreneurs generally do not want to sell. They only want to sell their weakest assets, and when the PE firms have a troubled asset, it’s much harder to deliver the returns,” he said.
Vasudevan pointed out that India was going through a softer cycle currently, as with Southeast Asia, and these were the best times to make investments.
“As when the markets are rocking, you must have the discipline to liquidate the capital,” he opined.
“We have the confidence to deploy at the right time and take chips off the table at the right time as well,” he added, citing 15 years of experience going through the motions of a few market cycles.