Investors challenged by governance in SE Asia – AVCJ Forum

"We face it every time we invest in a family-owned company that thinks that because they are the first generation of the business they can manage it better than anyone else," said Mohit Ralhan, a managing partner and CIO at India-based buyout firm TIW Private Equity. "I think the biggest challenge we face is overcoming this inertia and persuading management to accept a change."

Even in control situations, GPs can find it difficult to implement changes by fiat, as it risks antagonizing existing management teams - which often provide valuable expertise to sector agnostic investors like TIW. As a result, the firm sees its first priority as establishing a division of roles, where management focuses on strengthening the company's vertical capabilities while TIW contributes its experience with HR, marketing, and technology.

For other GPs, this type of relationship still does not go far enough to set a new direction for the company. Shaw Kwei & Partners, which focuses on middle-market companies in industrials and services, tries to make significant changes to senior management shortly after taking over a company. However, incumbents are kept on as consultants - if willing - to provide some institutional continuity.

"As a control investor, if we buy a company and keep all the same management, nothing is going to change," said Brian Lau, a managing director at Shaw Kwei. "As soon as you change the C-level, you can have up-front clarity with the management team on what you want to do with the company. You may not always make the right decisions, but you need the ability to be decisive with your team."

Insisting on management upgrades and alignment with PE owners is important in Southeast Asia, where an institutional mindset can differentiate a company from more traditional competitors. NWP Retail, an Indonesian shopping mall developer jointly owned by Warburg Pincus and Jakarta-based City Retail Developments, is pursuing a roll-up strategy focused on streamlining the inefficient operations of the family-owned businesses it purchases.

"One of the first things we do when we acquire a company is centralize anything we can," said Melanie Alshab, COO at NWP. "That helps us put technology in the assets; we have a lot of alert systems in the malls that are synchronized back to home office to help us identify trends. So our ability to scale is based on this ability to centralize extremely quickly."

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• Topics
• Southeast Asia
• Buyout
• Performance
• GPs
• Singapore
• AVCJ Events
• Shaw Kwei & Partners