Fund focus: Northstar navigates fundraising doldrums

COVID-19 began shutting down economies shortly after Northstar Group launched its fifth Southeast Asia fund and confronted the firm with a pivotal decision in the first half of 2020. Continue pressing on with the fundraise as usual or secure a first close now with the most reliable LPs and start taking advantage of a disrupted market. In hindsight, there was no choice at all.

There were too many interesting investment opportunities in 2020 to wait on the side lines for apprehensive LPs to get comfortable with new market realities. Some industries, especially tech-enabled ones, were given much faster growth outlooks. Others were simply being undervalued by a spooked market.

In April 2020, arguably a peak moment of pandemic anxiety, Northstar got to work with a first close of USD 260m. The capital was raised entirely remotely from a core of longstanding backers and one new LP, a relationship three years in the making. Fundraising essentially stopped at this point, with all efforts channelled into supporting the existing portfolio and deploying the fresh capital.

Subsequent closes over the course of 2021 saw the LP base tilt toward Asia-based organizations versus previous vintages. This was largely attributed to global investors’ ongoing difficulties making commitments via video and Asian LPs’ inherently greater interest in the region. The target corpus was consequently lowered from USD 800m to a flexible range around USD 500-600m.

A final close of USD 590m was achieved in December with support from sovereign wealth funds, insurance companies, family offices, and high net worth individuals.

Perception vs reality

It was Northstar’s second consecutive flagship vehicle to come in under target for macro reasons. Fund IV closed on USD 810m in 2015 during a commodities-driven slump in Indonesia. This time, LP skittishness was more about perception than fundamentals as fears of a pandemic-related slowdown in consumerism proved unfounded.

“Risk of consumer volatility was not a big point for us and our LPs because, while lockdowns are transient, the rising middle-class consumer spend is a long-term secular trend,” said Chee-Yann Wong, a managing director at Northstar.

“The first two closes of Northstar V were largely existing LPs, but the final close was mostly new LPs. This is reflective in part of the fact that the digital companies in Northstar IV and Northstar V have done really well over the past 18 months.”

The plan for Fund V is largely the same as its predecessor with the capital to be allocated in roughly equal thirds across consumer, financial services, and digital economy. Consumer will continue to encompass fast-moving consumer goods, healthcare, and education. Financial services targeting will be more digital in nature. Indonesia will remain the core geography.

Four deals have closed to date and there are expected to be about eight by mid-year. They include regionally active Greenfields Dairy, a $236 million carve-out alongside TPG Capital; Singapore’s Advance Intelligence Group, which operates the buy now-pay later (BNPL) app Atome; and Ula, an Indonesian B2B e-commerce retailer looking to expand its BNPL offering.

A tech agenda

There will be an increasing focus on tech, in step with the overall economy. For relatively non-digital investments, synergies with the tech portfolio will be pursued such as a recent distribution partnership between Greenfields and Ula. This will be supported by a build-out of Northstar’s in-house digital skills base and continued interest in companies as young as the Series A stage.

“It is a practical transition. It can be hard to find sizeable opportunities in Southeast Asia, but technology is a sector that is actually becoming quite big,” said Sunata Tjiterosampurno, Northstar’s co-CIO.

“As a manager, our asset allocation will reflect the transformation of the underlying economy. Fast-forward 5-10 years and even conventional businesses will be digitally enabled. The lines will become more blurred, which is just a reflection of how the regional economy is changing.”

Northstar cemented much of its reputation in this space as an early backer of Gojek, the Indonesian ride hailing-cum-super app that merged with e-commerce player Tokopedia last year and is now planning to IPO under the name GoTo with a valuation of at least USD 25bn. Northstar first invested in the company’s Series B; it is said to have made a partial exit in a USD 3bn multi-tranche Series F.

“We believe our ability to nurture relationships and build an ecosystem of digital founders provides our LPs with confidence. It’s not like a general partner can suddenly say, ‘I’m going digital.’ There is a process, and we been working through that for the past 6-7 years. Our access to that ecosystem differentiates us,” Wong added.

“With the first wave of digital IPOs in Southeast Asia, we are increasingly seeing Series A-B companies started by highly backable founders with experience in companies like GoTo, Grab, Sea, and Traveloka. This is an exciting time as we believe this sets the stage for long-term growth of the digital sector.”

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• Topics
• Southeast Asia
• GPs
• Fundraising
• Consumer
• Technology
• Singapore
• Indonesia
• Northstar Group
• covid-19