In the market for Asia financials

Robert Morse quit his role CEO of Citigroup’s Asia Institutional Clients Group in 2008 to become managing director, chairman and co-CEO of Primus Financial Holdings. He discusses the perks and pitfalls of investing in the financial sector.

Q: What is the top challenge facing the private equity industry right now?

A: I'm struck by how much competition there is to do deals. There are so many private equity firms that exist in Asia today that are focused on a lot of the same things. Our strategy has been to source deals ourselves. We don't like to participate in public auctions because if you do that, particularly for a public company, you end up paying a premium to the market. It's hard to make money when you're paying more than the market feels is the value of a company.

Q: A lot of fund managers cite public markets as a real problem for PE...

A: Public markets are so robust. You can in many countries around Asia decide to go to the markets by day one, and have your money by day three or day seven. So the enthusiasm of public-market investors to fund capital needs for companies is a competitive challenge for the private equity industry. I think as an industry, and certainly as a firm, we have to look for opportunities where we can create more value than just applying capital to a company.

Q: Primus raised a $1 billion fund at the height of the financial crisis in 2009. What were your experiences doing this?

A: We had exquisite timing in terms of our fundraising. I don't think we could have picked a worse time to raise funds; everyone felt in the first quarter of 2009 that the world was falling apart. We were lucky and we had a bit of an unusual fundraising in that all of our LPs are ultra-wealthy individuals in family offices who we've gotten to know over the course of the years and who have come to trust us as stewards of their capital.
We have the additional benefit of a very strong advisory committee of some of those LPs and we value their opinions enormously. They're very successful businesspeople in their own right, so I think it would have been naïve of us to think that they didn't have a terrific perspective on the world and how we can invest.

Q: Assuming the fundraising environment for a second fund will be considerably better, what would you do differently?

A: If and when we go out again and raise another fund, we'd perhaps like to be a bit more global and a bit more institutional in our fundraising. However, we would never want to turn our backs on the early supporters who have provided us with the about $1.2 billion worth of capital and who have been so supportive of our efforts. We hope to make them a lot of money.

Q: Primus focuses on the financial services industry. Can you speak about your process of due diligence in light of lessons learned during the crisis?

A: We do all the usual things: we hire bankers, we hire accountants, we hire lawyers, we pore over a company's books and financial records and we try to understand the corporate history. We try to develop our own view and we try to understand the company's view on future strategy, what the competitive landscape looks like and what the challenges might be. But I think we go the extra step in many respects. We make it a practice to do physical due diligence - we visit branches, we speak to customers, we speak to suppliers, we have hired experts to look at IT systems to make sure they're state-of-the-art and competitive. We are very focused on risk management and ensuring that the financials are what they should be. When we commit to fund a company, we know them better and they probably know themselves better than they ever did before.

Q: You have said that, within the financial services sector, you find the insurance business particularly interesting. Why is that?

A: Regarding the insurance sector, we think the macro-dynamics are pretty strong in Asia. There's a growing middle class and there's a lack of a social safety net in many countries, so insurance products have a lot of appeal for families and individuals. There are also tax advantages to investing via insurance products in many countries as opposed to investing via banking or securities. And there's underlying GDP growth in most countries in Asia, so that creates a benign atmosphere in which to invest in insurance. At the same time, there's still a lot of consolidation that we think will take place in insurance in the region.

Q: What other areas of financial services have the most growth potential in Asia?

A: We look at three different areas that we think have a lot of growth potential. Aside from insurance, we think that asset management holds a lot of promise as countries and financial systems mature. Right now it's at an early stage in Asia. And we think the broker-dealer space is way too dominated by global firms that do a great job - I worked at one for many, many years. There is a lot of room for smaller firms to fill areas that aren't fully staffed by the bigger firms.