Profile: Myanmar Investments' Aung Htun

Myanmar's turn toward political and economic opening in the late 2000s came as a surprise to many international observers, who had assumed the ruling junta would try to hold on to power for as long as possible. But Aung Htun, a co-founder of Bangkok-based PE firm Thai Strategic Capital, who had roots in the country through his father, had seen the development coming and was already considering ways to take advantage of it.

"My thought at the time was that maybe I could set up a private equity operation in Myanmar, which would be a normal thing; I had done it for decades in Thailand, and understood how it's done," says Htun. "But in 2012 I felt that the private equity structure is the wrong structure for that market."

Along with Mike Dean, a PPMV Asia alumni, he decided instead to found Myanmar Investments, an investment holding company that listed on the London Stock Exchange's AIM board in 2013. The firm seeks opportunities that have the potential to become strong institutions currently missing in the country, and hopes to hold onto its stakes for longer than would be allowed through a traditional private equity vehicle.

My strategy was very much that we do our own thing, but whatever we have is ours; as a Thai would say, we don't breathe through a congested nose - Aung Htun

The move to set aside the PE model fits with a career in which Htun has tried to build success by avoiding the most obvious play. From his entry into Asia in the 1980s to the present day, he has sought to create investment firms that could stand with their international peers while taking advantage of his local expertise. With Myanmar Investments, Htun hopes to set the cap on his long and varied career path.

London launch

Htun took his first steps into the job market with an engineering degree from Imperial College London. He was already fascinated with the stock market and the investment industry, but decided to pursue engineering based on the advice of his father, who had been born in Myanmar but moved to Thailand permanently following the military coup of 1962.

"My father told me that having an engineering degree is a good background, because it teaches you logic and a thought process that will stand you in good stead whatever you decide to do," Htun remembers. "He said if you want to read English or another language, those are subjects you can pick up any time in your life. But if you don't start with a solid engineering background you can't go back into engineering."

Following his graduation in 1982, Htun took a position with Kleinwort Benson, working on mergers and acquisitions in the investment bank's corporate finance department. He was still there five years later when his father, by then working with the United Nations in Thailand, suggested that Htun return home to take advantage of the economic takeoff that he felt was just around the corner.

Htun was aware of the region's growth potential, and during a visit to Bangkok realized that Thailand's lack of modern financial institutions and infrastructure - the stock exchange had only just switched to electronic displays from a whiteboard - meant there was an invaluable opportunity for him personally. His professional experience in London, coupled with his knowledge of the local market, would make him an important asset for any foreign firm looking to do business in the country.

But rather than join an international bank or investment house, Htun decided to take another path, co-founding Seamico with two acquaintances. The company started out working in corporate finance and venture capital, later acquiring a securities subsidiary from Standard Chartered Bank to form Seamico Securities, and eventually adding brokerage branches as well.

Seamico was meant to be different than other financial players in Thailand; the founders aggressively pursued international expansion, buying brokerages in Hong Kong, London and Mumbai. The international strength helped as Htun took Seamico public in Thailand in 1995, and he credits it for helping the firm survive the Asian financial crisis of 1997 as well.

Seamico was also designed to fix what Htun had always seen as an unfair balance of power between local firms and foreign players. In the late 1980s and early 1990s, overseas investors did business only through foreign brokers; it seemed like a mutually beneficial structure, but in practice the deals usually heavily favored the foreign partner.

"There would be an arrangement where the foreign firm would get X% on whatever commission they bring in, plus you as the local firm have to pay the costs and all that kind of stuff," Htun says. "Any local securities player working with a foreign company would show a headline of very high turnover. But if you looked at the net commission, it wasn't as large as you would expect."

Another drawback of the traditional structure was that it denied local firms, which felt they did most of the work setting up deals, access to the foreign investors' clients. An overseas firm might have dozens of institutional backers with whom the local partner would never have a chance to build a relationship; and if the GP decided to find a different partner for its next deal, the institutional investors would go with it.

Seamico's expansion was designed to avoid this quandary: the London and Hong Kong acquisitions gave it a client list of its own, and the Mumbai brokerage provided products for the public investment side. The founders saw this as a path to self-sufficiency, albeit while growing more slowly than some contemporaries. "My strategy was very much that we have to 'own' oru client base, so whatever we have is ours; as a Thai would say, 'we don't breathe through other people's nose,'" says Htun. "We didn't think it would be quick, but we felt it was more stable and value-adding to the firm in the long run."

This independent streak stood Htun well after he left Seamico and founded Thai Strategic Capital in 1999. The PE firm initially partnered with Prudential; when Prudential decided to pull out of Asian private equity in 2003, Htun carried on with HSBC and Citi Venture Capital International (CVCI). The most recent deal came in 2012: a $68 million commitment to skincare treatment provider Wuttisak Clinic with CVCI.

Finding a balance

Having built significant experience in private equity, going with a different strategy for Myanmar Investments was a tough call for Htun. But though he believed that Myanmar would offer enormous investment opportunities, he was also convinced that the PE fund structure could bind a firm too tightly in the still-developing investment environment.

One restraining factor was the lack of other investors in Myanmar due to a general reluctance to enter a still-unproven market. Even if Htun managed to raise a fund, the firm would have to go it alone in investments. "We could always work on big deals in the Thai market, because there were so many investors. You could take a small piece and you'd know you could always find a co-investor; other funds will come in with you," he explains. "In Myanmar a lot of people will talk, but will they actually co-invest with you? As a listed company, Myanmar Investment has access to significant capital and can continually raise capital to match deployment; therefore it is not constrained by size."

Judging the right fund size presented another challenge: raising a small fund would limit the capital the firm could deploy, while a large vehicle might have trouble finding enough deals. The absence of fellow investors would also make exits difficult. A GP that entered the market expecting others to follow suit and serve as target buyers for its investments might find itself stuck with a large unrealized portfolio if they never came.

With these arguments weighing against a private equity structure, Htun looked at the opportunities coming up in what he characterized as a "reconstruction economy," with nearly all sectors lagging far behind other regional economies. "When you come to Myanmar you have a chance to start almost at ground zero in many industries, and create a long-lasting franchise. We have the ability as a team and the connections to bring industries into Myanmar and start from scratch as well as make traditional growth capital investments," he says.

The longevity that underpinned this strategy was also a mark against a traditional PE structure. Myanmar Investments committed $2 million to microfinance player Myanmar Finance International in 2014; Htun believes the lack of financial institutions in the country mean it could become a significant player in the banking space in the next decade. What good would it do to exit with strong growth still ahead?

The listed investment fund was the firm's answer; it provides the flexibility to hold on to investments that are performing well, while allowing institutional backers to exit by selling their shares on the stock exchange if needed. With a market cap around $50 million as of mid-September, the fund has already made two investments - in Myanmar Finance and telecommunications network operator Apollo Towers - and is planning to announce three more before the end of the year.

Though Htun acknowledges that the PE model might work in Myanmar, he believes this structure offers a fitting counterpart to his experience. "I think Myanmar Investments is probably the last investment vehicle I'll set up and run. It's a culmination of all the experiences good and bad, all the knowledge, all the connections I have gained over 30 years successfully building businesses in Bangkok and London," he says. "Basically, that combination made me think this was the right structure, at the right time, in the right place."

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• Topics
• Southeast Asia
• Expansion
• Consumer
• Financials
• Myanmar
• Growth capital