LPs play the long game on Indonesia - AVCJ Forum

“Private equity in Indonesia is nascent and we are surprised by how few PE firms there are here. We have exposure and we try to increase our presence through regional funds and first time funds that are trying to grow,” said Huai Fong Chew, a vice president with DEG, a German development finance institution (DFI). “It will be a key investment destination for us and we hope to do more in the country.”

DEG has an office in Jakarta but most of its local activity involves private debt. Nevertheless, DFIs are an essential component of the LP base for less proven private equity managers in Indonesia because they are willing to take strategic steps that other investors are not. For example, the International Finance Corporation (IFC) has two GP relationships in Indonesia while Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) has none.

Rebekah Woo, senior director for Asia growth markets at CDPQ, said that the pension fund is exploring potential partnerships in the country but the market is not deep enough for comfort. “There is a long way to go and more opportunities to be uncovered,” she explained. CDPQ would feasibly consider managers once they get to Fund II, provided there is enough of a track record to work from, the team has shown its ability to execute a strategy, and the fund is of sufficient scale.

Most LPs assess markets and the managers operating in them on a top down and a bottom up basis. Sam Robinson, a managing partner at North-East Private Equity Asia, which is controlled by a European family office, said that Indonesia’s bottom up weakness is a lack of proven managers while its top down strength – based on young demographics and an emerging consumer class – is undermined by the fact that Indonesia is not yet seen as an essential component of a diversified PE portfolio.

While the likes of DEG and IFC are willing to back first-time funds, candidates have to meet strict criteria. Teams are usually expected to have worked together before, provide evidence of a track record, and have a strategy that fits their experience. “Some funds come to us and say they want to do Indonesia because it’s the biggest market in Southeast Asia and has a lot of natural resources. But if you look at what they have done in the past they do not have such experience,” said Chew.

In the absence of performance data from previous funds, LPs must piece together information from each investment professional’s past experience and supplement that with site visits. Even if a GP passes these tests, there is no guarantee of an allocation. “If you’re a small organization you can get three people around a table and decide,” said Robinson. “But if you have to get 20 people around a table to make a decision and they haven’t been to Indonesia it is harder.”

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• Topics
• Southeast Asia
• LPs
• Fundraising
• Indonesia
• AVCJ Events
• German Investment and Development (DEG)
• IFC
• Caisse de depot et placement du Quebec (CDPQ)