ASEAN integration brings opportunities, challenges - AVCJ Forum

Integration so far has largely focused on cyclical businesses, typically in the manufacturing sector. A South Korean company that produces components used in power plants might see the logic of moving more standardized elements of manufacturing to Vietnam, for example. Services are expected to feature increasingly prominently in the future.

"An overlooked aspect of the integration story is how quickly trade and services are flowing right across the Asian region," said Peter Amour, CEO of AIF Capital. "Modern services is going to be very interesting to watch - and there is already movement in areas such as financial services, logistics and supply chain management."

George Raffini, chairman of Headland Capital Partners, noted that his firm helped take a Thailand-based waste management business into Indonesia and Singapore. The customers are primarily multinationals with group-level mandates to meet certain environmental compliance requirements.

Taking a portfolio company into new markets as opposed to making direct investments have proved popular among regional GPs. A common complaint is that entrepreneurs in Myanmar and Laos - as well as those in more developed markets such as the Philippines - have yet to embrace private equity as a concept.

"There must be some inflection point where things will change and it becomes easier for private equity investors to be successful," said Soichi Sam Takata, head of private equity at Tokio Marine Asset Management. "Whenever people are negative about certain markets I think it's interesting because there must be an opportunity to change that."

Headland has been looking at deals in Vietnam and made two in the Philippines, but Raffini said the firm has encountered obstacles because a critical mass of knowledge as to what PE investors want - an exit, a degree of influence over the business, the opportunity to add value - has yet to develop.

Indonesia, on the other hand, with its growing pool of domestic GPs, can point to a transition in the making. The question is whether the market has gone full circle and is now overheating, with more capital looking for deals - certainly towards the larger end of the scale - than the country can supply.

"Is there too much money? The jury is out and all eyes are on us right now because we have the second-largest fund in Indonesia," said Kay Mock, founding partner at Saratoga Capital, which closed its third fund at $600 million last year. "LPs will look at hard at portfolios to see if Indonesia can deliver returns."

Alex Zhang, managing director at Wilshire Associates, noted that pendulum always swings from one side to the other - the perception of a particular market gravitates from underpenetrated and opportunity-rich to oversubscribed and overpriced, and then back again.

"I wouldn't say Indonesia is at a peak, but it's a very hot market," she said.

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• Topics
• Southeast Asia
• GPs
• Investments
• Southeast Asia
• Indonesia
• Vietnam
• Philippines
• Thailand
• Headland Capital Partners
• AIF Capital
• Saratoga Capital Group