Saratoga aims for differentiation
When Saratoga Capital was preparing to launch its third fund in July 2011, the elephant in the room was Northstar Pacific Partners. A few months earlier Northstar closed its own third fund at $820 million. Would LPs still be keen on when Saratoga came to market, or was their appetite now sated?
As it turned out, there was no need to worry. Saratoga Asia III was oversubscribed and reached a final close of $600 million in May. The fund is about four times the size of its predecessor, raised in 2009.
The Northstar effect was present, but nuanced. "Some LPs came to us and said, ‘We like you and we want to invest in a fund that will fill a different market segment.' They didn't want us to be anywhere close to Northstar in size" Kay Mock, founding partner at Saratoga, tells AVCJ. "So we stuck to the hard cap and had a clear distinction in terms of what we were targeting."
Saratoga counts fund-of-funds, sovereign funds from Singapore and Malaysia, private families from Europe and the Middle East, and one North American pension fund among its investors. UBS served as placement agent.
Interestingly, none of the institutional LPs from Saratoga's previous vehicle re-upped for the new one - in each case due to internal restrictions.
One US investor was unable to participate due to the Volcker Rule provisions, designed to limit the amount of capital banks can commit to alternative investments. CDC, the UK development finance arm, was forced to sit out because Indonesia is no longer classified as a developing country. Another developmental agency couldn't reconcile Saratoga's investment strategy with its charter requirements.
"This agency is unable to invest in certain environmentally sensitive areas while other LPs saw our access to deals in these areas as a competitive advantage," says Mock.
The areas in question concern natural resources, one of Saratoga's three pillar industries and a historical sweet spot. The firm arguably made its name with investments such as Adaro Energy, which raised $1.3 billion through an IPO in 2008. Mok believes the low-hanging fruit in natural resources was harvested long ago, but opportunities could emerge if commodities prices fall and already overleveraged mining companies come under pressure to raise capital.
The other two pillars are consumer and infrastructure. The latter sector is responsible for Saratoga Asia III's first investment - a $112 million control deal for gas-fired electricity producer Medco Power International.
The private equity firm expects to make 10-12 investments over the course of the fund, with ticket sizes ranging from $20-50 million. Mock says that large transactions are scarce and usually marketed by intermediaries, which doesn't play to Saratoga's strengths.
"We are lucky in that we are one of three or four firms with more experience in Indonesia. My partners, Pak Edwin Soeryadjaya and Sandi Uno, can source proprietary transactions from networks they have built over the last 15 years," he says.
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