Industry Q&A: Richard Pyvis

Q: How do you approach private equity?

A:    Our generic approach to private equity is focus on ‘old economy' opportunities where we can add value to the potential investee. It is based on the premise that, throughout Asia, we have growing per capita GDP, growing disposable income, growing consumption, and old economy businesses that catering to that. Our catch-cry is ‘Asia's billion baby boomers.' This ‘old economy' is providing the goods and services that harmonize with that thesis.

Q: How do you see the investment opportunity in China, including the RMB fund opportunity?

A:    There is a plethora of domestic RMB funds that have been launched, linked to the growing pool of savings in China, which require appropriate asset classes in which to invest. It is [predominantly] domestic investors and LPs catering to a domestic opportunity. We are always looking for new product, on the premise that it does not cannibalize our existing product.

We have been active in China, where private equity offers opportunity. Relative value remains very high there.

Q: How do you view other opportunities in the region?

A:    Across the region, the same investment hypothesis applies: domestic demand. ASEAN markets are quite small, so it is hard to find appropriate opportunities for us in some of those marketplaces.
We will continue to do more there, but the relative opportunity – the quantum of opportunity – is clearly greater in a country like China than it is in a country like Indonesia. Add to that the relative immaturity of the financial services sector in some parts of ASEAN, for instance Vietnam, which makes the opportunity in some of those markets more difficult to find.

Q: What about Japan, which doesn't follow that thesis?

A:    Japan is one of the most interesting Asian countries. You have huge savings pools, which to date have been relatively small participants in the Asian alternative asset management business. One thing we watch with interest is the very gradually increasing interest that savings in Japan display towards Asia.

The Japanese economy and demographic profile, along with being a very rich country, are in a phase of low nominal growth, which perhaps counter intuitively offers opportunity. The elderly tend to be wealthy with high disposable income. The relatively young, particularly women, live at home, are employed, have high disposable income, and spend it all. There are segments of that population that are highly attractive to investors. It is a market that has been very difficult for some private equity participants. We've found it to be interesting, and to offer some reward.

Q: How do you operate alongside your parent?

A:    The CLSA platform is a research platform, from which CLSA hangs a number of revenue streams. As our alternative asset management business matures and continues to demonstrate superior returns, we expect to continue to attract more LP interest. Our fiduciary obligations to our LPs mean we operate autonomously from CLSA.

Q: How did the GFC affect your investment practice?

A:    We went through about an 18-month period of low investment and low divestiture. It was a time when our investees needed help. The management of your investments in those periods changes from a hand tapping the helm to keep a straight course, to do we need to take in the sails? However, Asian balance sheets by and large are very well capitalized, which has meant the crisis in Asia has been a lot shallower than most would have anticipated. Post the 1997 Asian financial crisis, the recapitalization of corporate, financial services, household and government balance sheets was so strong that Asia has been able to weather the GFC better than most.

Q: How do you see global LPs' attitudes towards Asia?

A:    I see the growth in global savings increasing along with global GDP growth, which means that the relative availability of funds from North America and Europe will continue to grow. We see this moving increasingly, into the alternative asset management space.

There is a wall of money waiting to invest in Asia, particularly China. But amongst investors there remain concerns – we are not yet talking of the type of sea-change that will materially alter global investment profiles.  Fundraising is still exceptionally tepid, globally. The private equity manager is struggling to achieve returns in Europe and America, [but] it takes a while for re-ratings for fund allocations to Asia to move. And we now have real competition from Latin America, particularly Brazil. We have to continue to add value to attract capital. 

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