Tech, institutionalization drive change in Asia PE – AVCJ Forum

K.Y. Tang, chairman and managing partner at Affinity Equity Partners, noted that heightened LP demands around issues such as governance and cybersecurity would require the broader industry to build up more due diligence-related infrastructure. At the same time, investors need to be increasingly attuned to the impact of technology on buyout markets.

“You have to figure out how to play the new economy, which technologies can you adopt and what can you do to modify your business model to adapt to the disruptive models that are coming out,” Tang said. “You can never run away from technology. You have to swim and play with the sharks or be eaten alive.”

China was characterized by the panelists as both an increasingly important destination for direct investments and a market outside players must exploit through various tangential strategies. Opportunities in the country are expanding due to favorable trends involving corporate carve-outs and succession needs, as well as the emergence of more investable foreign companies that have an existing Chinese presence. 

Weijian Shan, chairman and CEO at PAG Group, said that while his firm focused on large buyouts, it had also recognized the value of making higher-risk investments in younger technology companies. As a case in point, he referred to an investment below PAG's usual minimum deployment requirement in China Music, a company that was later invested by Tencent Holdings at a much higher valuation.

“We almost missed that one because of our policy, so we decided that the tech space in China was too important to ignore even for a buyout firm,” Shan said. “You really have to be very steeped in the tech sector and have people who are knowledgeable to take advantage of those opportunities, but if you do, then the pay-off can be enormous.”

This viewpoint was tempered by Jean Eric Salata, CEO and founding partner of Baring Private Equity Asia, who described the Chinese technology sector as a bubble that will be difficult to exploit for firms that are not purely focused on venture.

However, there was general agreement that China will become a market increasingly predominated by larger, more systematized investment firms. It is part of a broader move towards institutionalization in Asian private equity that is expected to include a variety of approaches to incentivizing teams and incorporating public equity ownership models. This is seen as a positive evolution overall that will lead to more consistent outcomes while still leaving room for individualism.

“It’s clear that the institutionalized larger-cap players will capture a larger market share, but that’s not to say there isn’t always going to be those nimble spin-outs and smaller teams,” Salata said. “The challenge is how do you institutionalize your business while maintaining that flexibility, quick decision-making and entrepreneurialism. You have to ensure that you instill that in the organization because it’s a key element in deal-making.”

The AVCJ Forum is being held in Hong Kong on November 14-16. For more information, go to www.avcjforum.com.   

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• Topics
• Greater China
• GPs
• Buyouts
• Asia
• Baring Private Equity Asia
• PAG
• Affinity Equity Partners
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• China