Q&A: Creador's Brahmal Vasudevan

Q: What is the state of the investment environment in Indonesia?

A: The investment environment hit its peak in 2011-2012 - the public markets were at all-time highs and valuations were also high. What we are seeing now is a much more normal market. Indonesia has been lumped in 4-5 other markets and it took a beating from an inflow and outflow perspective and the currency is down 25%. That shocked people; they are worried about the current account deficit and how it is going to get funded. It is an excellent time to be deploying capital when the rupiah is at the low end of the band. The deficit is a short-term concern and we see it being sorted out quite quickly through currency depreciation and rising exports. The long-term pieces of the story - around a large, youthful population and growing GDP - remain intact.

Q: Given the volatility in Indonesia in recent months, how important is it that you are active in multiple markets?

A: It is very hard to be a good long-term investor and deliver strong returns because every market goes through its own cycle. We operate in three markets and it allows us to toggle the needle from time to time. For example, last year we were busy in Malaysia, which has been less affected by the macro situation. We have done less in India, but the outlook might be getting better. At the same time, you don't want to be in 10 markets because you lose the ability o be local.

Q: To what extent are your investments cross-border within Southeast Asia?

A: We invest in consumer businesses that largely serve the domestic market. Our investments in India and Indonesia serve the domestic market only, but all three of our portfolio companies in Malaysia have become dominant domestically, then moved to Singapore and on into other parts of Southeast Asia. Old Town White Coffee, went from Malaysia to Singapore, then Indonesia, Hong Kong and China. Bonia, a fashion brand, went from Malaysia to Singapore and we are now rolling out in Indonesia. In GHL, a payments business, we are in Malaysia and the Philippines right now.

Q: Are there sectors you have decided not to enter?

A: We typically don't like commodities businesses. Investors made a lot of money between 2005 and 2009 but in the last five years they have struggled as prices have fallen. There is no certainty the cycle will turn and we don't like cyclical plays because of this problem - the price isn't decided by the consumer but by lots of subjective elements.

Q: What questions do you get from LPs about your strategy?

A: We are largely minority investors so LPs worry about our ability to influence companies, especially when things are not going to plan. Our thesis is a bit different. First, we are very fussy about the sectors we invest in, conducting extensive research on how they work regionally and globally. For example, if we talk about banking in Indonesia, it has the lowest penetration of any consumer banking market in the region, so we know it is going to be a good sector for the next 10 years. We are also fussy about the companies we invest in, looking not only at how they have performed historically but also assessing the character of the owners and managers. In these markets, the ratio of minority growth opportunities to buyout opportunities is 20:1. We can never displace the passion of an entrepreneur: he has built his business through blood, sweat and tears. It is very hard to find a hired gun to replace that kind of passion.

Q: Are the family conglomerates in Southeast Asia competitors for these deals?

A: A lot of the entrepreneurs we see don't want to be associated with a particular group; they want to be seen to achieve things by themselves. And then the availability of professional capital outweighs the family conglomerates by a significant margin. In Malaysia there is a scarcity of private equity and historically many young companies would go to conglomerates for seed funding. Since we have come along we have seen a lot of interest from these companies that want to maintain their independence and they see us as a source of professional capital and support to grow their business.

Q: What do you offer beyond capital in terms of operational support?

A: We just introduced a new team called Creador+ made up of ex-Boston Consulting guys who work alongside our companies to help them achieve their goals. The team is run out of Kuala Lumpur and we are in the process of hiring an additional person for Indonesia specifically. In the early days we get the investment team to play that role, but once you reach a certain size it is possible to staff up a separate team. The investment guys can focus on finding deals and sitting on boards, while the Creador+ team steps up to do some of the heavy lifting.

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