Aureos new mid-cap fund Southeast Asia’s largest?

The new fund is looking to target exclusively the small to mid-cap markets, investing $2-10 million in companies across the region, including Indonesia, Malaysia, the Philippines, Thailand, Vietnam, Cambodia and Laos.

Sev Vettivetpillai, Chief Executive of Aureos Advisers Ltd, said of the new fund, “Southeast Asia is well placed to be one of the first regions to fully emerge from the current economic downturn. The strength of the region’s economies lies partly in the practical lessons that were learnt from the Asian financial crisis of the late 1990s. This has left the region with low levels of leverage, flexible exchange rates and high foreign exchange reserves.”

He noted that the recent focus on China and India has overshadowed investment opportunities in this region, with private companies in Southeast Asia undervalued compared to their Chinese or Indian counterparts, and compared to regional companies listed on the rebounding stock markets.

Defensive sectors, including healthcare, education and waste management are a particular point of focus, as is the consumer play, which continues to be a strategic pillar of most Southeast Asian funds.

Hanjaya Limanto, Managing Partner for Aureos Southeast Asia and a 20-year veteran of the industry, explained that the strategy for the new fund will be to make equity investments in “established small-to-medium size businesses with profitability and growth track record, led by experienced management teams, in select sectors.” Seeking out businesses with the potential to become “regional powerhouses through organic expansion, rollout and acquisition,” he said Aureos will invest growth capital, as well as looking at “change of control deals, particularly management buyouts.”

The firm has been on the ground in Southeast Asia for the past six years, with offices in Bangkok, Manila, Jakarta and Vietnam. This, combined with the experience of a local and highly qualified investment team “enables us to access mid market opportunities directly,” said Limanto. He added that consistent demand for risk capital from good quality companies translates into a steady flow of excellent deal opportunities.

Equally, he believes there are also interesting MBO opportunities, spurred on by multinationals and family-owned businesses looking to spin out non-core businesses.

Whilst the global slowdown has had an effect on Southeast Asia, it has been more limited than in other parts of the world. In large part, this is due to lessons learned after the 1997 Asian Financial Crisis, which prompted banks to implement prudent monetary and fiscal policies. This, and the limited exposure to US sub-prime assets and NPAs have saved the region from the prolonged route to recovery currently underway elsewhere in the world.

Limanto said, “The region’s businesses feel that the economy is back to normal and the consensus is for the region to show strong growth. Consumers in the region maintained healthy domestic balance sheets throughout the downturn and have started spending again.” The latter point is perhaps the most significant, as domestic demand continues to support local business – currently accounting for about two-thirds of Indonesia’s GDP – and is expected to grow. A recent CLSA report supports these views, noting that the countries have relatively young populations, which means the region’s best demographic years – and continued growth – still lie ahead: in Indonesia, 44% are under the age of 25; in the Philippines 46% are under 21; in Malaysia 32% is under 15, and in Thailand the majority of the workforce is under the age of 30. 

 “The size of the region’s economy, with a population of over 575 million and GDP of $1.3 trillion, means that it has now reached a scale where it should form a core holding for investors seeking to invest on a global basis” Limanto added.

Aureos was established in 20001, and now manages over $1.2 billion. The group has made investments in Asia, Africa and Latin America.

 

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• Topics
• Buyout
• Southeast Asia
• Hanjaya Limanto
• Sivendran Vettivetpillai
• Aureos Advisers (Aureos Capital)