Southeast Asia fundraising: Growing pains

Northstar Group has raised $810 million for its fourth fund, but getting there was no easy task. The GP's primary market is Indonesia, and while Joko Widodo was elected president last year on the back of renewed optimism, he needs time to implement the economic reforms upon which he will be judged.

Meanwhile, LPs were preoccupied by uncertainty over the rupiah and the economy. The situation is far removed from 2011 when Northstar raised $820 million for its third fund: Indonesia was Asia's third emerging market of scale, a potential counterpoint to China and India, and LPs were falling over themselves to get an allocation.

Northstar Equity Partners IV exceeded its approximate target of $800 million and fell short of the hard cap of $1 billion. But it is still the fifth-largest private equity fund ever raised for Southeast Asia (Indonesia is expected to account for about 70% of the corpus, as was the case for Fund III, with the rest deployed in markets across the sub-region).

There are more GPs operating in Southeast Asia than five years ago, but it is still a relatively small group. Overall fundraising has topped $5 billion on one occasion - 2007, inevitably - and surpassed $4 billion five times. An even smaller number of GPs have managed to raise funds of significant size. AVCJ Research has records of three funds of $1 billion or more (all raised by Navis Capital) and nine in the $500 million to $1 billion range (three of them raised by Northstar).

This presents a challenge for LPs that want exposure to Southeast Asia outside of the pan-regional vehicles. Institutional investors that for reasons of scale can't write checks smaller than $80 million might struggle to consider anyone apart from Navis and Northstar. And neither of these represents a perfect sub-regional blend: Navis on occasion touches Australia and Hong Kong, while Northstar is highly concentrated on Indonesia.

Two explanations spring to mind for the relative paucity of GPs in the upper middle market, and both relate to the fact that Southeast Asia remains a collection of markets rather than an integrated zone.

First, any GP hoping to offer diversified geographical coverage needs an office - and staff who speak the relevant languages - in almost every market. This is a natural barrier to entry. Only a GP of reasonable size would have the resources to build this presence and that is in turn dependent on the fee streams that emanate from larger funds.

Second, successful cross-border strategies within Southeast Asia are not that widespread among private equity firms. Rather than address every ASEAN market, many GPs tend to pick two or three that are somewhat complementary. Hence, Southern Capital's focus on Indonesia, Singapore and Malaysia, or Creador's concentration on Malaysia and Indonesia (in addition to India). Indeed, the firm has added the Philippines to the remit for its latest fund, but coverage is still in the very early stages.

The ASEAN Economic Community, set to launch at the end of this year, is intended to deliver a level of integration that can underpin broader investment theses, but there is big difference between announcing an initiative and successfully implementing it.

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• Topics
• Southeast Asia
• Fundraising
• GPs
• Navis Management
• Northstar Group
• Fundraising
• Southeast Asia
• GPs