PE partnerships – A route into Indonesia

Unsurprisingly, China has generated the most interest. For example, 3i invested $45 million into CDH's third fund in 2005 with a view to gaining more insight into the local market. While I am not sure what benefits the UK-listed firm was able to draw from the LP commitment, it is likely they were profitable from both a financial and an intellectual perspective.

CDH also has a close co-investment relationship in its early days with Morgan Stanley Private Equity Asia. The arrangement - which was never properly formalized - arose from Morgan Stanley's role as a founding investor in China International Investment Corporation (CICC). Wu Shangzhi and his team at CDH spun out of CICC. The two private equity firms collaborated on a number of very profitable deals. As a former colleague of David Liu (then MSPEA's head of China, now a partner at KKR), says: "Do you think David is the kind of person that takes a backseat role?" The firms seem to have now gone their separate ways and there has been no recent overlap in terms of investments.

Going back to the TPG-Northstar deal, the US buyout firm clearly expects the agreement to give it an edge in Indonesia, Asia's latest emerging opportunity, effectively formalizing a relationship that stretches back over six years. TPG first invested in Northstar's funds in 2005, having become acquainted with the team via Tim Dattels, who worked with them in his previous role running Goldman Sachs' Asian investment banking business.

Since its establishment in 2006, Northstar has been making waves as Indonesia's largest and most proficient deal maker, with more than $1 billion invested locally. The deal has been compared with the TPG-Blum Capital joint venture of the 1990s - Newbridge Capital. In truth, there are as many differences as similarities: Newbridge was a green field investment while Northstar is already well established.

Are we going to see more deals under way? It is likely that, given the interest in the Indonesian market, the remaining three of the "big four" - Ancora, Saratoga and Quvat - will receive offers from other private equity firms to, at least, collaborate on deals.

One of the biggest impediments about investing in Indonesia is the difficulty in identifying a local partner that knows the market. Corporations - and the well-connected families that tend to own them - are good, but it is not easy to find one with interests aligned to those of foreign private equity firms. Yet the great Indonesian opportunity is too big to ignore.

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• Topics
• Southeast Asia
• GPs
• Northstar Group
• TPG Capital
• CDH Investments Management
• CICC
• Morgan Stanley
• Goldman Sachs
• KKR