Fund focus: Falcon House shows its staying power

Having emerged during the bull market of 2011 when close to a dozen private equity firms were trying to raise debut Indonesian funds, Falcon House Partners has proved its resilience by getting to Fund II. The GP closed the vehicle at the hard cap of $400 million, comfortably beating both the $300 million target and the size of the previous vehicle, which came in at $212 million in 2013.

According to AVCJ Research, Falcon House Partners Fund II is also the fourth-largest Indonesia PE vehicle ever raised. Capsquare Asia Partners, the only other survivor from the class of 2011, is also back in the market with its second fund, having raised about $80 million for the first.

The development of Indonesia's economy over the ensuing years has not been smooth. By the middle of 2013, the country was grappling with a commodities downturn that had crippled exports. Then talk of quantitative easing in the US shook emerging markets: the Jakarta Composite Index slumped, and the rupiah went into freefall as capital took flight.

Despite slower GDP growth in 2014-2015, long-term faith in the Indonesian consumer remained. "More than half the country is under 30, it's at the sweet spot of the McKinsey S-curve in terms of urbanization, and people spend a relatively large amount of their disposal income," says a source close to Falcon House. This favored the GP's consumer-focused strategy, with areas such as healthcare, food and beverage and food production showing relative strength.

Fund II will follow the same middle-market line, committing $30-40 million per transaction. The targets are typically companies led by founder-entrepreneurs who are looking for capital and value-add in terms of corporate governance, institutionalization and talent acquisition. Falcon House now has a team of 20 chasing these opportunities.

LP support for Fund II continues to come from the development finance institution (DFI) space. The International Finance Corporation (IFC), Germany's DEG and the Netherlands' FMO all re-upped. However, the DFI share of the corpus has fallen to around 15%, from 30% in Fund I. The biggest increase in commitments between the two vehicles was from US endowments and foundations.

As the fundraise progressed, confidence was bolstered by President Joko Widodo's stimulus packages, of which there have been 14 since October 2015. Initiatives range from administrative measures such as speeding up licensing procedures to tax cuts for small business to the removal of foreign ownership caps in many industries.

While Fund I has yet to see any exits, these processes are likely to be facilitated by the removal of red tape. "The regulatory regime is becoming more favorable from a strategic and secondary buyer perspective," the source adds. "This is particularly the case around foreign ownership regulations and the streamlining of investment regulations."

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• Topics
• Southeast Asia
• Fundraising
• GPs
• Growth
• Consumer
• Indonesia
• Falcon House
• Growth capital