Realism on exits essential in Southeast Asia – AVCJ Forum

“The preparedness for exits is the single biggest factor that’s changed in my mind,” said Sunil Mishra, a partner at Adams Street Partners, speaking at the AVCJ Singapore Forum. “A lot of times people used to just invest with an eye to how they can add value, and exit was something they thought about much later. You can’t do that in emerging markets – the windows of opportunity to exit are fewer, shorter, and more illiquid.”

Sam Robinson, managing partner at North-East Private Equity Asia, said he frequently hears from other LPs that Southeast Asia was their worst performing market in Asia in terms of distributions to paid-in (DPI). The relative scarcity of exit opportunities was a factor in this performance, but part of the blame in LPs’ eyes also lies with GPs that enter investments without a clear plan for generating the best returns.

Investors believe GPs will see exit opportunities grow on the back of factors such as global supply chain disruptions due to the US-China trade war along with the interest of overseas corporations in penetrating Southeast Asia’s consumer market. Coupled with this is an increasing realism on the part of firms and a willingness to take suitable liquidity options when they emerge rather than passing on a good offer under the assumption that something better will come along.

“You really have to think through what is going to be the upside of waiting another two or three years. What if markets look totally different then, which is often the case in Southeast Asia?” said Geetali Kumar, vice president and head of private equity for Asia at DEG. “I think if you have an offer on the table that is above cost, we’d much rather you take it than wait for a better opportunity.”

GPs’ perception of LP expectations have become more realistic as well, with fund managers increasingly understanding that institutional investors tend to prefer returns that are reliable and solid, rather than waiting for years for a spectacular exit to emerge. LPs have drawn on their experience in other Asian markets to argue that GPs should not make the perfect the enemy of the good.

“At my previous firm, we were in a fund that was in Alibaba. There was an opportunity to take some money off the table, and I strongly suggested they should take it,” said Robinson. “As it turned out they could have done better financially, but afterwards all I heard from the GP was how glad they were that they’d done it, and the other LPs were happy with a 2x return and some residuals. It gives you comfort that the GP is careful in his thinking.”

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• Topics
• Southeast Asia
• LPs
• Performance
• Singapore
• AVCJ Events
• Adams Street Partners
• German Investment and Development (DEG)
• Exit