GPs target micro gains in weaker macro environment - AVCJ Forum

"Picking the right country, industry and company is not enough to generate the returns you are looking for," Jim Hildebrandt, managing director at Bain Capital, told the AVCJ Korea Forum. "You have to concentrate more on growing companies to increase EBITDA."

Targeting industries that are growing faster than the economies in which they operate remains part of most investment strategies, but PE firms are looking further and deeper for opportunities and only acting on the ones where there is a high level of conviction that the thesis makes sense. An investor that pursued one in 20 deals 10 years ago might only act on one in 50 today.

Rodney Muse, managing partner at Navis Capital Partners, noted that this does not necessarily mean passing on bad companies. "It's either inefficient pricing or you cannot find the alpha thesis," he said. "We ask ourselves why should we be the owner of a business and what can we do with it that hasn't been done already. You can fall in love with a company and then find you cannot do enough to deliver the required return."

These more nuanced approaches take many different forms. For Tata Capital Growth Fund, the value-add is linked to its association with Tata Group and whether the corporate ecosystem can help take companies to the next level. For CITIC Capital, it is more about broadening scope. "We look at various countries and combine the relative strengths," said Fanglu Wang, a senior managing director with the China-focused firm.

He cited a recent CITIC investment in an Iceland-based geothermal energy specialist as an example. The GP acquired a stake in the company with a view to rolling out the technology in China, which has plenty of low temperature geothermal energy. It then teamed up with a domestic oil and gas company in order to help identify local energy sources and to secure supply agreements. "GPs should not merely be deal finders but deal makers," Wang added.

Expectations of future returns from Asian private equity should also be considered in the context of the industry's historical development and the region's broader investment environment. Hildebrandt noted that performance over the last five years has been better than the 10-15 years before that, and he puts it down to the emergence of proven GPs at regional, sub-regional and country level.

"There is now a smaller subset of GPs in Asia with larger teams and more capabilities and they deliver more consistent returns," he said. "Small to mid-market players are falling out of the market. We have seen fewer start-ups and that is good for the region."

As to the investment environment, GPs have seen an improvement over the last two years, in part as Asia reached the end of the long tail of the global financial crisis. "The buyer-seller gap was wide but it has narrowed in the last two years, which is good for those putting money to work," said Muse. "And strategics have remained pretty acquisitive, which is good for getting money back to LPs."

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• Topics
• GPs
• Buyout
• Expansion
• Asia
• AVCJ Events
• Navis Management
• Bain Capital Asia
• CITIC Capital
• Tata Capital
• South Korea