For the last two years, Southeast Asia has seen a large influx of investors and capital flowing into the region. The region’s private equity sector, however, has been relatively slow to develop.
Until now, that is. A recent report by Bain & Co stated that Southeast Asia’s private equity sector is “ripe for the next phase of growth”.
The year 2018 saw PE giants such as Warburg Pincus and KKR inject more capital into businesses based in Southeast Asia. On top of that, the advent of larger Asia-focused vehicles is also likely to spur more investments in Southeast Asia, feel industry executives, although it may be more opportunistic initially.
“Southeast Asian economies, broadly speaking, have not scaled to the extent that a consistent stream of large-cap deals can support mega-cap regional or country funds here. Hence, the mega-cap pan-Asian and global players have generally approached Southeast Asia on an opportunistic, rather than a dedicated basis,” said Morgan Stanley Private Equity Asia CEO Chin Chou.
PE firms are also increasingly venturing into what has been traditionally seen as VC territory in the region, points out global law firm Linklaters partner Parthiv Rishi.
“Given the size of some of these capital raisings and the high-profile nature of some of the companies raising capital, we have seen the increasing entry by large, traditionally buyout focused PE funds competing alongside the more traditional VC funds in this space – something they have not necessarily done elsewhere across the globe. We will continue to see a convergence of the more traditional buyout funds competing with, and investing alongside, the more traditional VC funds in venture capital-style fundraisings,” he told DEALSTREETASIA.
Challenges in SEA
One of the biggest challenges in Southeast Asia is the lack of sizeable deal flows to accommodate the record dry powder. Historically, PE investments in the region have hovered for years between roughly $6 billion and $9 billion, based on a recent report by Bain & Co.
Rishi agreed although he noted the opportunities and deal flow in Asia are amongst the best globally which is why fundraisings have been so successful and why overseas investors are opening up offices across Asia to help facilitate deal origination and positioning.
“To compete in this environment investors will need to innovate to deploy their capital in smarter ways on both the upstream and downstream sides and to build closer and deeper relationships with founders and management.
“We have noticed that the funds that have been particularly successful in the region have, on top of having deep, existing relationships, have been able to harness internal operations expertise within their platforms and portfolios to demonstrate how they can add value to target businesses especially when it comes to overseas expansion strategies,” he said.
Bain & Co’s senior advisor for Global Private Equity practice, Suvir Varma, noted that competition from local conglomerates in markets such as Thailand, Indonesia and the Philippines has also served as an investment barrier.
“Today, the main challenge is the rising competitive intensity in the investment landscape from all angles. Traditional funds are facing increased competition from sovereign wealth funds and other institutional investors, corporate venture capital divisions, conglomerates from China and Japan, and more,” he said.
Another challenge of investing in the private equity space in Southeast Asia is scalability, due to vast cultural differences and varying regulations across a number of jurisdictions.
“It will be interesting to see how the rise of tech-focused businesses influence and disrupt this dynamic. Investors certainly have confidence in the ability of tech businesses to be able to effectively expand across regions and this is borne out through some of the recent valuations,” said Rishi.
To this end, local governments have been working to spur investments in the PE and VC sectors. In November, the Monetary Authority of Singapore launched a $5-billion fund focused on investing in private enterprises and infrastructure projects. In Malaysia, the government has allocated about $480 million for co-investment alongside PE and VC players in strategic sectors and new growth areas.
Asian PE funds that were launched/had first close/closed in 2018:
|Fund||Firm||Fund size (million)||Geographical focus|
|Creador IV||Creador||US$ 550||Southeast Asia|
|Centurion Student Accommodation Fund||Centurion Corporation||US$ 51.1||Singapore, Australia, the UK and the US|
|COPE IV||COPE Private Equity||US$ 70||Malaysia|
|ASLF II||ADM Capital||US$ 178||Emerging markets in Asia|
|Asia Agriculture Technology Fund||Vanda Global Capital||US$ 1,500||Asia|
|Warburg Pincus Global Growth Fund||Warburg Pincus||US$ 13,750||Global|
|PAG Asia Fund III||PAG||US$ 6,000||Asia|
|Hillhouse Fund IV||Hillhouse Capital||US$ 10,600||Asia|
|Baring Private Equity Asia Fund VII||Baring Private Equity Asia||US$ 6,000||Asia|
|CVC Asia Fund V||CVC Capital Partners||US$ 5,000||Asia|
|North Haven Thai Private Equity||Morgan Stanley Private Equity Asia||US$ 440||Thailand|
|Bain Capital Asia Fund IV||Bain Capital||US$ 4,650||Asia|
|TPG Asia VII||TPG Capital Asia||US$ 4,000||Asia|
|Axiom Asia V||Axiom Asia Private Equity||Undisclosed||Asia|
|Axiom Asia Co-Investment Fund||Axiom Asia Private Equity||Undisclosed||Asia|
|Navis Capital VIII||Navis Capital Partners||US$ 1,750||Southeast Asia, Australia, China|
|Capsquare Asia Partners Fund III||Capsquare Asia Partners||US$ 150||Indonesia|
|ADV Opportunities Fund II||ADV Partners||US$ 597||pan-Asia|
|Gateway Real Estate Fund VI||Gaw Capital||US$ 2,000||Greater China, Japan, South Korea, Australia and Southeast Asia|
|Asia Credit Fund||Värde Partners||US$ 400||Asia|
|EFA Financial Institutions Debt Fund||EFA Group||US$ 100||Emerging markets in Asia and Eastern Europe|
|L Capital Asia III||L Catterton Asia||US$ 1,500||Asia|
|Southern Capital Fund IV||Southern Capital||US$ 500||Southeast Asia|
|Lion-OCBC Capital Asia Fund I||OCBC Bank||US$ 397||Asia|
|Asia Value Fund 2017||Shawkwei & Partners||US$ 812||pan-Asia|
|EQT Mid Market Asia III||EQT Partners||US$ 800||Greater China and Southeast Asia|
|Northstar Equity Partners V||Northstar Group||US$ 800||Southeast Asia, with a primary focus in Indonesia|
|Vietnam-focussed vehicle||ACA Investments||US$ 100||Vietnam|
|LaSalle Asia Opportunity V||LaSalle||US$ 1,100||Australia, China, Hong Kong, Japan, Korea and Singapore|
|Myanmar SME Venture Fund||Anthem Asia||US$50||Myanmar|
Significant PE deals in 2018:
|Firm||Investment in Southeast Asia||Investment size (million)|
|KKR||Singapore-based V3 Group||US$ 366|
|Allianz Real Estate||Singapore-based Ocean Financial Centre||US$ 392|
|Warburg Pincus||Hong Kong-based Weave Co-living||US$ 181|
|KKR||Singapore-based PropertyGuru||US$ 144|
|KKR||Singapore-based Barghest Building Performance (BBP)||US$ 33|
|Kendall Court||Indonesia-based Mandaya Medical||US$ 55|
|Navis Capital Partners||Vietnam-based Saitex Holdings||Undisclosed|
|Navis Capital Partners||Malaysia-based Dscaff||Undisclosed|
|Warburg Pincus||Vietnam-based Techcombank||US$ 370|
|KKR||Philippine-based Voyager||US$ 175|
|Ekuinas||Malaysia-based Flexi Versa||Undisclosed|
|Standard Chartered Private Equity||Singapore-based Tat Hong Holdings||US$ 312|
|YY Inc and others||Singapore-based Bigo Technology||US$ 272|
|Bain Capital Private Equity||Singapore-based DSM Sinochem Pharmaceuticals||US$ 582|
|Toyota Motor Corp, Macquarie Group and others||Singapore-based Grab||US$ 2,000|
|Hyundai Motor, Kia Motors||Singapore-based Grab||US$ 250|
|CVC Capital Partners||Malaysia-based Munchy Food Industries||US$ 283|
|KV Asia Capital||Malaysia-based APIIT Sdn Bhd||US$ 181|
|Affinity Equity Partners||Malaysia-based INTI Universal Holdings||US$ 180|
|KKR||Indonesia-based Go-Jek||US$ 1,500|
|SoftBank and others||Indonesia-based Tokopedia||US$ 1,000|
|KKR||Unilever Indonesia||US$ 210|
|CVC Capital Partners||Indonesia-based Garudafood Putra Putri Jaya||US$ 150|
|Astra International||Indonesia-based Go-Jek||US$ 150|