Q&A: Ekuinas' Dato' Abdul Rahman Ahmad

Q: What is the composition of Ekuinas' private equity portfolio in terms of outsourced commitments and direct investments?

A: Ekuinas operates two investment operations simultaneously: direct investments, where we invest directly into mid-sized Malaysian companies; and the outsourced program, where we appoint third-party private equity firms to invest on our behalf. Since our inception in 2009, we have established two funds under direct investments with committed capital of MYR2 billion ($630 million) and two funds under the outsourced program with committed capital of MYR640 million. As of December 2013, we had undertaken a total cumulative investment of MYR1.8 billion across 24 companies, out of which direct investments represented nearly 90%.

Q: How has the direct investment portfolio grown since inception and how has it performed?

A: We had made 15 investments amounting to MYR1.6 billion as of year-end 2013, and facilitated total capital deployment of nearly MYR1.8 billion. The Ekuinas MYR1 billion Direct Tranche I Fund had achieved a gross portfolio return of MYR655.9 million, which translates to a gross annualized IRR of 25.5% and a net annualized IRR of 20.4%. This exceeds our stated long-term minimum targeted annualized return of 12% and our aspirational target of 20%.

Q: The outsourced investment program has committed MYR640 million across two tranches since 2012. How do you expect it to develop?

A: The MYR640 million is spread out among seven outsourced fund managers (OFMs) across two tranches. Ekuinas has allocated MYR1 billion over the long term for its outsourced programs, so there is a balance to be allocated in the future. The strategy is to expand the capital pool, given that the OFMs are required to raise at least 20% external private capital to match Ekuinas' 80% allocation. This is in line with the Malaysian government's call to increase public-private partnerships. Further, the outsourced program has been designed to be complement Ekuinas' direct investments given its focus on smaller deal size and minority growth capital, while the direct investors focus on larger deal sizes and predominantly buy-outs. At the same time, we hope that the increase in the number of more active private equity firms will broaden the opportunity for more Malaysian companies to partner with local PE firms that have the necessary network and expertise to help grow their business. This will help develop the Malaysian private equity industry as an alternative source of capital for companies.

Q: Your first direct investment - Alliance Cosmetics - was a co-investment. The disclosed investments since then appear to have been direct. Is co-investment still an important part of your strategy?

A: Yes, Alliance Cosmetics was a co-investment with Navis Capital Partners. Whilst investments undertaken thereafter by Ekuinas have been predominantly independent, we have another co-investment with Shoraka Capital, a boutique Malaysian investment house, to acquire a 90% stake in Unitar Capital, the owner and operator of UNITAR International University. Co-investment with GPs remains a part of Ekuinas investment strategy and we are constantly on the lookout for opportunities to collaborate with strong private equity firms that can add value.

Q: How does Ekuinas view its role in the development of private equity in Malaysia?

A: Whilst Ekuinas is focused on meeting its commercial and social objectives, we also recognize the need to play a developmental role given private equity in Malaysia remains a relatively nascent industry. We believe this can be achieved by demonstrating that private equity investment, if successfully executed, is not only able to deliver superior returns but can also serve as a catalyst to transform companies and enhance economic productivity. At the same time, our outsourced program provides the opportunity for Malaysian private equity firms to raise capital and develop, as well as build their track record in delivering successful investments.

Q: What do you see as the key factors that may help or hinder the development of the industry?

A: The biggest challenge is the limited participation by Malaysian investment institutions in PE. Relatively few domestic groups are willing to be LPs in private equity funds, whether domestic or global. Other factors include the relatively small size of the Malaysian economy which means that attractive deals are not easy to identify. Accordingly, private equity firms need to be more innovative in driving investment opportunities and ensure they able to drive strategic and operational value creation to deliver the required returns. At the same time, Malaysian companies traditionally regard the capital markets as the first port of call for raising capital. Similar to other Asian countries, a lot of businesses are still family-owned and unfamiliar with external private investors. However, given that private equity's profile is rising as a result of successful deals and partnerships - and as public market valuations for smaller and mid-size companies recede - we believe the future of PE in Malaysia is bright.

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• Topics
• Southeast Asia
• Investments
• LPs
• Ekuinas
• Malaysia
• LPs