LP interview: North East Private Equity Asia

North East Private Equity Asia, the seven-year-old regional arm of a family office established by the founders of jewellery retailer Pandora, has 20 GP relationships. More than half are managers that Sam Robinson, North East’s managing partner, has known for over a decade. Only one received a commitment without having previously met the family office.

“There’s a real value to investing in people you know. It’s amazing the things you find out about managers second and third-hand if you give it a couple of years. You must be willing to bend the rules every now and again, but the art is not to bend them too much,” said Robinson.

“The instance where we got comfortable [without having an existing relationship] was with an Indian life sciences manager. They were focused on a sector where we wanted exposure, so from a top-down perspective it was attractive. Bottom up, they ticked all the boxes apart from me not knowing them. But I knew people who did know them, so I was able to thoroughly reference my concerns.”

Robinson joined North East Group in 2016 after 15 years in the fund-of-funds space with the likes of SVG Advisors and Abrdn, including five in Asia. He was drawn by the opportunity to build a regional portfolio from scratch – and by Jan-Ole Hanson, North East Group’s CIO and an ex-colleague at SVG.

The family office was established in 2013 following Pandora’s 2010 IPO that served as an additional liquidity event for the Enevoldsen family, which had sold a majority interest to private equity in 2008. It is owned by Winnie Liljeborg and Per Enevoldsen, the founders of Pandora, and their son Christian Enevoldsen. North East Group claims three additional families as clients.

In addition to working on a blank canvas, Robinson could rely on an unusually deep interest in Asia for a Danish family. Over two decades earlier, Pandora set up a manufacturing operation in Thailand. Enevoldsen and his son relocated to the country to oversee it and never left. Robinson learned about North East Group when Hanson stopped by Singapore on his quarterly trips to Thailand.

“As a new family office, we were able to look around the world and ask where we thought we saw value. Most European family offices would start in Europe, then go to the US, and then eventually come to Asia. Given the founders already had an affinity with Asia, we could say let’s go more for Asia immediately,” Robinson explained.

He describes North East Group’s assets under management (AUM) as being in the “low billions.” For context, when Pandora listed it had a market capitalisation of DKK 27.3bn (then USD 5bn) and the three Enevoldsen family principals collectively held a more than one-fifth stake.

The family office pursues various investment and philanthropy programmes, but Asia represents almost all its institutional private equity and venture capital exposure. Approximately USD 300m has been deployed across fund commitments and co-investments to date. Formally opening up to third-party capital as a fund-of-funds has been considered but it is not currently a priority.

Design and deploy

North East PE Asia’s structure is not dissimilar to that of a fund-of-funds. Investments have been made through three sequential vehicles, each about USD 100m in size. These vehicles have no finite lifespan – they are corporate structures that issue shares to investors – but there are set investment periods, after which they merely generate distributions and ultimately liquidate.

“One key difference to a fund-of-funds is that you can be more aggressive in terms of over-commitment. We are recycling distributions from vehicle one to vehicle three; if more capital is required later, the family can provide it. A fund-of-funds has different investors in each vehicle, so you must be careful not to run out of money,” said Robinson.

The design is intended to facilitate exits, for management team members who invest alongside the family and, ultimately, for younger generations of the family should they take a different approach to wealth management. At present, the three principals remain committed to the model.

North East PE Asia focuses on middle market and venture capital managers: the smallest fund it has backed has a corpus of USD 70m and only one has crossed the USD 1bn threshold. Cheque sizes begin in the USD 5m-USD 10m range and increase with each re-up.

The 20 manager relationships are split roughly equally between Japan and Korea, Southeast Asia, Australia, and India. In terms of AUM, the portfolio skews towards the region’s more developed markets, with more than 60% deployed in Australia, Korea, and Japan. Venture capital exposure is 15%-20% and is entirely Southeast Asia apart from one manager based in Japan.

“You want a portfolio to be a mix of developed and emerging markets. Developed markets give you a predictable 3-4-year hold, some early realisations to reassure everyone, good corporate governance and reporting, and valuation methodologies that allow for movement. You can’t have a portfolio of people who hold for 10 years without revaluing everything from cost,” said Robinson.

On the emerging markets side, there is belief in the growth of Southeast Asia and India. North East PE Asia’s exposure to the former extends into jurisdictions like the Philippines and Thailand where the asset class is less developed. This reflects a long-term perspective: second-quartile returns are acceptable today if there is an expectation that a manager will be top-quartile in three years.

The noted absentee in the portfolio is China, which has been excluded since day one. Robinson admits he would have looked for opportunities in the country if able to do so, but Hanson was reluctant to do so. The CIO’s reasoning, which in hindsight seems prescient, was that there is a heightened risk of sudden policy changes negatively impacting the portfolio.

As a result, Southeast Asia accounts for a larger share of AUM than might otherwise have been the case, but Robinson has always been bullish on the geography’s long-term prospects, and sitting in Singapore means there is relative ease of access to managers.

“Not doing China also helped in terms of business building. China is such a huge market; you must start hiring people quickly. I was able to spend the first two years getting my feet under the table, working out the right approach, and then hiring gradually,” he added. “I really value the fact that I’ve been able to build a team in a measured way.”

A slow 2023?

North East PE Asia now has two full-time private equity staff working under Robinson. Secretarial and accounting functions are also run out of the Singapore office, with North East Group’s Copenhagen headquarters taking care of everything else.

The team has sufficient bandwidth to participate in co-investments, usually two or three a year with cheque sizes of USD 1m-USD 2m. Southeast Asia and ESG [environment, social, and governance] are favoured themes among the founders. “We aren’t under any pressure to do co-investments, but if an ESG-related deal in Thailand came up, we would be interested,” said Robinson.

During the pandemic, North East PE Asia also provided bridge financing for underlying portfolio companies that needed money to keep afloat prior to full equity funding rounds.

The general view is that 2023 will be slow. Deal flow is unlikely to be as strong as most managers expect, which will lead to delayed or protracted fundraising processes. Robinson isn’t unduly worried about portfolio GPs losing senior staff and potentially sliding into zombie mode – North East PE Asia typically backs relatively stable managers on Fund III or IV – but he is being more selective.

“If you think a fund will be in the market for a year, you aren’t in a rush to get on a plane. The challenge for GPs is getting their PPM [private placement memorandum] to the top of the pile and making LPs think it’s going to move,” he said. “Small funds can go either way. It doesn’t take many LPs to fill a USD 250m fund, so if there’s a chance it will close quickly, you get on the plane.”

Getting access to target managers hasn’t been a challenge thus far. North East PE Asia has been able to leverage Robinson’s existing relationships in the region and its perceived status as a patient and differentiated source of capital. That differentiation is given an extra edge by some GPs classifying the group as a European family office and others as an Asian family office.

The last time North East PE Asia backed a new manager was in 2020. COVID-19 was a contributing factor with 2021 dominated by re-ups as travel restrictions prevented on-the-ground due diligence of pipeline GPs. Now there is the intent and ability to add new relationships, but not necessarily the same haste: the programme is increasingly mature.

“Once you have three or four relationships in each market, you don’t go looking for more,” Robinson said. “Much of what we’ve done isn’t very old, and some relationships will fall away over time, but it is a testament to the strength of the programme that for the most part we still like what we see.”

If and when managers are added to the portfolio, North East PE Asia will take its time assessing candidates. Robinson finds introductory meetings that end with a direct pitch off-putting and claims he is like most of his peer group in appreciating the soft sell. To this end, the allocation of more resources to investor relations among small to mid-cap Asian managers has been heartening.

“I love it when a GP gets in touch and says, ‘We’ve just raised, so there’s no pressure, but can we have a meeting?’” he adds. “That’s the best time to have a first meeting.”

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• Topics
• Southeast Asia
• LPs
• Fundraising
• Europe
• Singapore
• Family office
• Fund-of-funds
• North-East Private Equity Asia