GPs highlight merits of differentiation – AVCJ Forum

Participating in a panel discussion as part of the AVCJ PE Leaders' Summit on Tuesday, James Ahn, managing director of Clayton, Dubilier & Rice stressed that differentiation was possible in Asia as deals tend to be less intermediated than in the US. But the key issue remains adding value.

"If there is a problem them we can make a lot of money: Someone wants to growth faster than they have capital to do on their own; families want to exit businesses in low profile way; Chinese and Indian firms want to go overseas but can't rely on their own expertise to do this," Ahn said. "You find a problem where you can get your hands dirty and bring your capabilities to the table."

In this context, Jun Tsusaka, partner, managing director and representative at TPG Capital Japan, highlighted the need on-the-ground knowledge. He recalled TPG's first forays into Asia, using expertise developed in Europe and the US and a hub-and-spoke strategy based out of Hong Kong.

"We were importing buyout technology into the Asian market and this was the reason for a few missteps in the beginning," he said. "There was a failure to understand local issues... Now we layer all our technologies over this local knowledge."

James Boettcher, general partner at Focus Ventures, whose primary focus in the region is China, looked at differentiation in terms of US dollar funds versus renminbi funds. He recalled successfully bidding for a water treatment deal in Beijing and subsequently being told by the owner that the Focus Ventures offer was third lowest. It won out because the target company wanted exposure to international markets and technologies.

And what of the two even lower bids? "It was two renminbi funds that submitted blank term sheets and said ‘name your number,'" Boettcher said.

In the subsequent LP panel, Steve Byrom, head of private equity at Future Fund, gave voice the thoughts of many in the industry by saying that the trend among renminbi funds of pursuing multiples arbitrage strategies is "going to end in tears." With nothing to offer in terms of differentiation or value add, these firms' business model can last only as long as mainland IPO exit valuations make it economically viable.

Byrom also expressed concerns that China fund managers in general are looking to raise too much capital, and this could have a detrimental impact on performance.

"Too many managers aspire to be the Blackstone of China, which is a scary parallel," he said. "When they raise too much capital the strategy differs and they start trying to do things like invest outside of China. That's not what we are investing in them to do."

The PE Leaders' Summit and Limited Partner Summit, both of which took place on Tuesday, form part of the AVCJ Forum 2011 and Private Equity Week - Asia. It continues today with the Investment Summit. For more information, please visit http://www.avcjforum.com. You can also follow events as they unfold via Twitter @AVCJ (hashtag #avcj and #avcjforum).

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• Topics
• GPs
• Greater China
• Renminbi fund
• Expansion
• AVCJ Events
• AVCJ Private Equity & Venture Forum
• Growth capital
• RMB fund
• TPG Capital
• Future Fund