Culture is key to a sustainable spin-out - AVCJ Forum

"There are a lot of early spin-outs in Asia with great talent and deal experience willing to take the risk of starting their own businesses," said Hemal Mirani, a managing director with HarbourVest Partners. "No one needs to be convinced of the broader opportunity set, but I have always been struck by the difficulties in bringing in and retaining talent. It is a bigger challenge than in more established markets in the West."

Australian mid-market buyout firm Adamantem Capital was founded by two former Pacific Equity Partners executives in 2016. They took a conscious decision to hire people who were not from conventional private equity backgrounds or who were not past colleagues.

"It means there is less groupthink, more entrepreneurship, more calculated risk-taking. On the flip side, how do you take these people who have never worked together as a team and gel them at short order?" said Anthony Kerwick, one of the founders. He added that the process was made easier by people who want to work in private equity sharing similar characteristics. They tend to be self-motivated, driven, and keen to take responsibility for their career progress.

However, the industry dynamics differ by market. Japan's private equity industry, for example, has experienced numerous fits and starts, including a post-global financial crisis period during which many domestic GPs cut back their teams and dealt with challenging portfolio company issues.

"The top people from business schools didn't necessarily view private equity as a destination," said Jun Tsusaka, who led TPG Capital's Japan operation before establishing NSSK in 2014. "That's changing now, but it takes time. Those people want to know that they can grow. Because the industry is still young, we have a lot to prove – not just to LPs but to the market at large, including potential recruits."

Navis Capital Partners is not a spin-out; the 21-year-old Southeast Asia-focused firm was founded by three colleagues from Boston Consulting Group. But Navis has been forced to evolve in line with the industry as a whole, which includes meeting the expectations of an increasingly sophisticated workforce.

"Twenty years ago we brought an experienced PE guy from the US to Asia, and when we asked for his advice on recruitment, he said you wait until they threaten to quit and you give them a 10% bump," said Rodney Muse, a managing partner at Navis. "But people have to understand the firm's economics and you need alignment. We have 11 non-founding partners who are shareholders in the business, while 60 out of the 100 people at the firm have invested in the GP commit."

Starting a firm from scratch, armed with an awareness of how certain decisions panned out with another private equity firm, can be daunting as well as liberating. Adamantem recognized an opportunity in an Australian middle market that had been vacated by managers as they moved up in fund size. At the same time, the founders were aware that the decisions they took at the beginning regarding structure and culture would have a lasting impact.

"From a business perspective, I think it has played out as expected," said Kerwick. "From a personal perspective, it has been more challenging but also more rewarding – waking up every morning with a long list of to-dos and no one else to blame."

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• Topics
• Southeast Asia
• Australasia
• North Asia
• GPs
• Australia
• Japan
• AVCJ Events
• Navis Management
• NSSK
• Adamantem Capital