Profile: Silverhorn’s Bert Kwan

Bert Kwan began his journey as a Southeast Asia specialist in 2013 while at Standard Chartered Private Equity (SCPE), backing Vietnam-based casual dining chain Golden Gate in his debut deal. Mekong Capital took the business from one outlet to 62 before handing over to SCPE. When Kwan departed the firm in 2017, there were more than 300 restaurants.

This kind of scale proposition is every bit as relevant today as it was a decade ago, albeit with some tweaks to the target sectors and value creation theses. It is likely to feature prominently as Kwan embarks on the next leg of that journey, building out a Southeast Asia and China-focused growth capital investment program for Hong Kong-headquartered alternatives manager Silverhorn.

“We are looking for high growth and this is often enabled by technology, but the companies won’t necessarily be technology companies. If you look at 315 Nhi Dong [a Vietnam paediatric clinic chain that Kwan invested in last year in his previous role at BDA Partners], fundamentally it’s about delivering a better product than what is currently available,” he said.

“Nhi Dong was three clinics and now it’s 33. People often wait five hours to see a doctor at a hospital in Vietnam. This company has shortened the wait to an hour and doubled the amount of time spent with the doctor. There are not a lot of mental gymnastics to that.”

Investing in expansion-driven growth stories across Asia’s emerging markets is the thread that connects the various phases of Kwan’s career. Yet there are a few knots. From painful moments of reckoning around the turn-of-the-century tech bubble and the global financial crisis to a couple of failed spinouts, he might claim to be defined by challenges as much as by triumphs.

“You get into private equity, get burned a few times, and I’d like to think it makes you a humbler, more understanding person,” Kwan observed.

The Lehman experience

An opportunity in the asset class came early, though then it was regarded as no more than a staging post. Kwan completed his undergraduate studies at Princeton University in 1997 and immediately got a job with Lehman Brothers Private Equity, witnessing the cut and thrust of US buyouts out of the New York office. The goal was to save enough money to pay for law school and become a prosecutor.

Lehman had other ideas. After Kwan had completed three years at Yale, the firm offered to refund his tuition for another two years in private equity. He never looked back.

However, the return to Lehman was initially a chastening experience. After that stint with the buyout team, Kwan moved to the venture unit and participated in several late-stage investments in Silicon Valley-based start-ups. He left for law school three months after the dotcom bubble burst in 2000 and came back in 2003 in time to help pick up the pieces.

“We felt good about those deals when we did them, and then later we had to restructure all of them that were still around. There was a lot of wreckage,” Kwan said. “That helps at a time like now – the valuations, the greed, the FOMO [fear of missing out], you’ve seen it all before.”

Five years later, it was Lehman’s turn to capitulate. Overexposed to subprime mortgages and unable to find a white knight, the investment bank filed for bankruptcy protection in September 2008. Kwan was in Hong Kong at the time, having joined the Asia private equity business in 2005.

Lehman was following a playbook that had worked in other geographies: deploy balance sheet capital and then warehouse the investments as seed assets for funds raised from third-party LPs. With no more balance sheet, it was clear the fund management business would be sold off – but to whom? As the sole principal leading a small team of juniors, Kwan resolved to submit a bid.

“It’s incredibly humbling, sitting in the conference room in the wake of the bankruptcy with an executive from a Japanese bank who is 20 years older than you, hat in hand, begging for USD 50m to buy back your portfolio,” he recalled. “At that stage in Asia, it was a food fight. No one knew what was going to happen and everyone was looking for a new home.”

Parts of Lehman’s private equity business did spin out, notably the US buyout and venture operations as Trilantic Capital Partners and Tenaya Capital, respectively. Most of the Asian assets went to Neuberger Berman, which had completed its own separation from Lehman, as part of a larger sale process.

Kwan stayed for four months to support the transition. He got engaged a few days after his position was discontinued, short on savings (much of his net worth was tied up in Lehman stock) and with an uncertain future.

Secondaries and spinouts

After a brief period at HarbourVest Partners, including a crash course in secondaries that would later prove very useful, Kwan was recruited by Joe Stevens, then head of principal finance at Standard Chartered. He was part of the China team and then took on a portfolio management role, which ostensibly meant working on exits.

There were two key liquidity events, both Singapore-headquartered precision manufacturing companies and co-investments with CVC Capital Partners, yet with very different outcomes: Infastech was sold to a trade buyer for a 3x return following a two-year holding period; Amtek was eventually exited to a financial sponsor in 2016 after nine years and several aborted attempts to get out.

Kwan was then named head of Southeast Asia ex-Indonesia and quickly made his mark in Vietnam. In addition to Golden Gate, he led investments in the likes of e-wallet operator MoMo and media platform N Kid. “By 2013, Vietnam had blown up, so there were some good opportunities,” he said. “We’d looked there in 2007 at Lehman, but the valuations were less attractive than China.”

In parallel, Kwan became involved in discussions about preserving a private equity business within Standard Chartered while moving assets off the bank’s balance sheet. At HarbourVest, he’d worked on the spinout of Bank of America Merrill Lynch’s Asia private equity unit – which became NewQuest Capital Partners – so recognised how secondary techniques could be applied to the situation.

Starting in 2013, Standard Chartered embarked on a two-year process that saw more than 40 positions worth USD 2.3bn spun out into four new limited partnerships backed by secondary investors. The SCPE team retained management responsibilities.

Stevens subsequently proposed a spinout, but he was unable to agree on economically viable terms with the bank, which was still paying the team’s salaries to manage the new limited partnerships and the USD 1bn in assets still on the balance sheet. After negotiations irretrievably broke down in 2016, Stevens was fired. Kwan left soon after. “Joe’s departure was abrupt, and it came as a shock,” he said.

The team, and most of the balance sheet assets, finally spun out in early 2019. By that point, Kwan was two years into a three-year tenure with Northstar Group. He first met the firm in 2008 when Lehman joined an investment in Bank Tabungan Pensiunan Nasional (BTPN). TPG Capital was taking part and Ashish Shastry, a TPG executive and a Lehman alumnus, recommended Kwan.

When the spinout failed, Patrick Walujo, one of Northstar’s founders and the original point of contact on BTPN, reached out. “He called me up and said, ‘I was sorry to read about what happened to you and Joe. How would you like to come to Jakarta?’ It was seamless, it happened within a week,” Kwan recalled.

Northstar was deploying its fourth fund and harboured ambitions to expand beyond its Indonesia beachhead. Kwan focused on opportunities in other markets in Southeast Asia, with Vietnam once again to the fore. Investments followed in e-commerce platform Tiki, online education business Topica, and co-working space operator UPGen.

Going for growth

The desire to pursue a more autonomous and independent endeavour, which made him resist Northstar’s initial advances, began to bite again. Rather than commit to another fund cycle, Kwan teamed up with BDA, an M&A advisory firm with a strong track record in Vietnam, to launch an investment platform. 315 Nhi Dong was the first deal.

The idea was to invest on a deal-by-deal basis, through single LP vehicles or by using warehousing facilities. They started in December 2019 and the onset of COVID-19 proved a hindrance. The platform founders were putting their own capital to work, and once it became clear that conditions would not be conducive to building something bigger in the near term, Kwan decided to move on.

Silverhorn, he believes, is a good fit. The firm was established in 2010 by Mike Imam, who previously worked in private banking at Credit Suisse and Schroders. There are USD 1.85bn in assets under management (AUM) spread across hedge funds, public equities, private equity, and private debt. Most of the investors are institutionalised family offices in Europe and to a lesser extent Asia.

Private equity accounts for one-third of AUM. To increase this exposure, Silverhorn is planning a USD 300m fund-of-funds, co-investment, and direct investment program. Separately managed accounts (SMAs) offering direct investments on a fund-of-one or co-GP basis are also expected to feature. Venture and growth capital, with a bias towards Southeast Asia and China, is the lead strategy.

“There are thousands of venture and early-growth funds, and most are sub-scale and don’t have long track records. Below them are many thousands of SMEs [small and medium-sized enterprises]. It’s very hard to crack these markets without the right experience and institutional set-up,” Kwan said.

“At the same time, most Asian fund-of-funds players have reached a scale where it doesn’t make sense sifting through companies in Southeast Asia. We fill a niche. We offer growth, diversification, and direct exposure to institutional investors that have up to USD 50m to deploy.”

Historical private equity performance in Southeast Asia suggests a market that is both cyclical and volatile. Silverhorn wants to ride out the choppiness on the fund side by doubling down on outperforming portfolio companies through co-investment and direct investment.

What the team won’t do is invest in technology for the sake of it. Rather, Kwan will rely on what has worked for him before: sectors that appeal to trade buyers and business models that can be proven or demonstrate profitability on a small scale. Technology is a tool that may make this happen faster.

“We don’t start with technology. We start by asking where the inefficiency is and how it can be solved,” he added. “If you look at Tiki, a lot of the growth has come from logistics – putting people in the right place on the warehouse floor and positioning the racks so those people don’t have to move around so much. The number of boxes a guy packs in a day goes up by 40%. That’s low-tech.”

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• Topics
• Southeast Asia
• Greater China
• GPs
• LPs
• Silverhorn
• Standard Chartered Private Equity
• Northstar Group
• BDA Capital Partners