Same fundamentals, better investment story

For some, there is a bit of déjà vu about the developments in Indonesia. Private equity firms and other foreign investors were once active in acquiring local assets. Indeed, prior to the Asian financial crisis and before the emergence of China and India, Indonesia was seen by many as Asia's leading PE market. The selling points were much the same as they are now, but it is to hoped that investors participating in this wave appreciate lessons learned from the last.

It is also worth noting that Indonesia has changed enormously in other ways - it is now politically stable and the regulatory and legal systems are more user-friendly.

The current trend most likely started with local investors, some with affiliations to private equity, who made strong returns in natural resources-related investments, as well as distressed asset deals made even earlier on. Investments via private equity vehicles returned to the market in the form of indigenous local funds managed by savvy and well-connected Indonesian professionals, who were able to capitalize on opportunities that put the country back on the private equity map.

The local funds, many now well-capitalized, have been joined by a number of global and regional firms that have established offices or affiliates in the country. While there are countless other factors and issues involved, this emphasis on local partnerships and local dealmakers is a significant difference between the current wave of investment and that of pre-1997. It seems reassuringly more stable and sustainable.

While a few firms still pursue the "fly in fly out" approach (and as far as we can tell, they haven't been too successful), most major players have either established - or are in the process of establishing - a local presence. As all regional GPs know, it is important to have an understanding of the domestic business scene and reliable on-the-ground partners in every Asian market, but this is especially true in Indonesia, where foreign investors have in the past got their fingers burnt.

Remember, this is the market that took the wind out of the once highflying Peregrine Investments Holdings. What was once Asia's most powerful investment bank underwrote a bond issue by local transportation company Steady Safe in 1997 - a deal many local investors questioned at the time.

Peregrine lost its last wing when BNP Paribas dropped its name in 2006, while Steady Safe continues to provide its services. In fact, many of the local entrepreneurs and businessmen that lost riches back in the 1997 crisis have not only been restored their former glory but acquired a lot more wealth.

This is the wonderful world of Asian deal-doing, where knowledgeable indigeneous partners can be the difference between a successful deal - and a failed one.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Southeast Asia
• GPs
• Indonesia
• GPs