Southeast Asia’s unloved

This week's cover story looks at markets that are enjoying the same macroeconomic tailwinds but have attracted less industry attention, notably the Philippines, Thailand and Vietnam. Anecdotal evidence suggests that more GPs are scouting for deals in these locations as intense competition in Indonesia pushes valuations beyond the comfort zone.

In the spirit of looking beyond the obvious, here we identify some of the private equity angles in Southeast Asia that are generating some interest, but arguably not as much as their potential warrants.

Oil and gas - As illustrated in one of this week's focus stories, Southeast Asia's oil and gas industry is riding high on the back of a growing liquefied natural gas market, massive spending programs announced by national oil companies, and strong demand for end product from the likes of China, India and Indonesia. Private equity firms continue to target services companies as a proxy for this growth but investment in independent exploration and production players has lagged, certainly compared to Western markets. As more specialist energy GPs set up shop in Asia, this is may change.

Cleantech - There is no doubt that Southeast Asian governments are keen on cleantech, with Indonesia, Malaysia, Thailand, the Philippines and Vietnam set to install an additional 32 gigawatts in renewable energy capacity between 2012 and 2025. However, an immature investment environment, a heavy reliance on state-driven incentives and the generally smaller scale of projects have created obvious obstacles for private equity and venture capital players. LP interest emerged in the mid-2000s and is slowly gathering pace, but the primary actors remain development finance institutions.

Australia - CHAMP Private Equity set up its Singapore office in 2008 and last year made two investments in non-Australian companies. The government is encouraging companies to engage with Asia as a logical replacement for the slowdown in the mining boom but so far it has been more an angle for global and regional funds. The reluctance among certain domestic GPs to follow suit is rooted in a sense that their expertise is at home, not overseas; horror stories abound of third-party distributors in new markets. But how much longer can they afford to ignore the Southeast Asia growth opportunity on their doorstep?

Healthcare - There is undoubtedly interest in Southeast Asian healthcare but much of the investment is driven by strategic investors and sovereign wealth funds. For example, IHH, which is controlled by Malaysian sovereign fund KhazanahNasional, has aggressively pursued hospital consolidation in South and Southeast Asia. Deals originated by conventional GPs have not amounted to much in recent years, especially once the Singapore share is stripped out. Yet incomes are rising - spurring demand for high-quality healthcare - and 80% of expenditure in this area still comes out of the private pocket.

Venture capital - The challenge for venture capital in Southeast Asia is twofold. First, unlike China and India, deal flow is not sustained by returnees who form entrepreneurial communities. With the exception of Singapore, it is questionable whether home-grown entrepreneurs understand what investors are looking for. Second, Southeast Asia comprises multiple countries with long-standing differences, so the scaling-up opportunity that exists in China and India doesn't necessarily apply. Even if it does, entrepreneurs might not have the resources or expertise to address all these markets. Angel investor groups are trying to provide solutions to the first problem. Greater VC engagement with in the region might help with the second.

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• Topics
• Southeast Asia
• Cleantech
• Consumer
• Industrials
• Venture
• Australia
• Southeast Asia
• Cleantech
• Venture
• energy
• Commodities
• healthcare