Malaysia rising
It's been a few years since Southeast Asia, spurred by rising interest in Indonesia, emerged as the hottest region for LPs seeking private equity exposure. While the frenzy has eased recently, the region remains an attractive location, especially for smaller funds. And a sizeable portion of these small to mid-size players have adopted a more balanced pan-ASEAN approach instead of focusing on a single country.
It is no surprise that Singapore is the leading recipient of private equity capital, while Indonesia remains popular but has yet to generate investment flow commensurate with the level of attention. The Philippines and Vietnam, never subject to great expectations in terms of deal volume, have been reasonably sparse.
Malaysia, remains underpenetrated by private equity - although there is reason to believe this may soon change. Having visited Kuala Lumpur very recently, it feels to me that the Malaysian government, through various linked entities, will play a critical role in this paradigm shift.
Ekuinas since its inception has been the driver of private equity deals within Malaysia either directly or via its outsourcing programs. Endowed with government money, the group has amassed a portfolio of 12 direct deals with another seven from its outsourced GPs, including the likes of Navis Capital Partners and CIMB.
In terms of venture capital, MAVCAP, another government-linked manager and the country's largest VC firm, has been active in funding local entrepreneurs. The 12-year-old firm is said to have made more than 140 investments. Like Ekuinas, MAVCAP also outsources to local GPs.
Malaysia is also fast becoming a destination for private equity fundraisers thanks to government-linked entities.
The Employment Provident Fund, probably Malaysia's biggest LP, announced earlier this year that it will increase its allocation to private equity (which it has been doing for a couple of years). There is still plenty of room for improvement as allocations are less than 1% of the EPF's $162 billion assets under management.
In addition KWAP, the country's $28 billion retirement savings fund, may seek more private equity investments.
Of course, Malaysian private equity isn't only government-driven. Navis has been headquartered in Kuala Lumpur since it was set up in 1998. CIMB's PE team is also a force in the market along with a number of other principal investment arms of local banks. Creador Capital, which invests the bulk of its capital in Southeast Asia, also calls Kuala Lumpur home.
With recent reports suggesting company owners are increasingly open to the prospect of selling stakes to PE investors, the perfect storm may be nearing. Malaysia has the potential to become a significant private equity destination - in a Southeast Asian context - for GPs and LPs alike.
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