PE investors see opportunity amidst volatility - AVCJ Forum

"Private equity is a bottom-up business. It is about finding sectors, segments, business models and opportunities where we can take a longer-term view and create value for investors," said David Shen, managing director at Olympus Capital Asia. "In the current cycle there is a lot of volatility and that impacts our view of risk when underwriting investments, but we are seeing some very interesting opportunities in our target markets."

Rob Petty, managing partner and co-founder of pan-regional special situations investor Clearwater Capital Partners, views the "multi-faceted, cyclical environment opportunity" presented by Asia as one of the region's most attractive qualities. It allows investors to be contrarian, riding a rebound in one economy while taking advantage of a downturn in another.

"We can exit what we bought in India several years ago when everyone hated the market and enter China today when it is right at the forefront of the head winds," said Petty.

Clearwater has been looking at industrial companies in China and Asia, with Petty saying these businesses are going through "massive pain " due to a combination of heavy debt burdens, high leverage ratios and falling earnings. The private equity firm's entry strategies range from acquiring loans through domestic banking systems to buying bonds in Hong Kong-listed companies.

The industrial sector is also of interest to Shaw Kwei & Partners, albeit from the perspective of a China and Southeast Asia-focused middle market PE firm. Kyle Shaw, founder and managing director at the firm, identified three trends that underpin its investment theses: overcapacity in the general manufacturing sector, the potential to introduce disruptive technologies to high value industrial businesses, and succession planning opportunities that arise as founders get older.

"We are less focused on interest rates and foreign exchange rates and the recently announced PMI [purchasing managers' index] and more focused on opportunities where we can move a company up the value chain, introduce disruptive technologies, and support management teams to move to their next stage of development," Shaw said.

However, many private equity investors find it difficult to address volatility in the exit markets, particularly in Asia, which has historically been highly reliant on IPOs. The collapse in China equities prices over the summer prompted regulators to suspend new share offerings once again, derailing GPs' exit plans. However, trade sales are on the rise, driven in a large part by Chinese buyers.

"In the last 12 months we have seen significant M&A activity and interest from A-share listed companies," said Olympus' Shen. "It has become harder for these companies to achieve top-line growth so they are interested in acquisitions as a means of achieving growth."

The AVCJ Forum is being held in Hong Kong from November 3-5. For more information, please go to www.avcjforum.com.

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• Topics
• Buyouts
• Expansion
• Greater China
• AVCJ Events
• Asia
• buyout
• Growth capital
• Shaw Kwei & Partners
• Olympus Capital Holdings Asia
• Clearwater Capital Partners