History lessons of PE in Asia

Given that I spend most of my time talking to people about current issues and their likely future impact on the asset class, it is eye-opening to step into the past.

In my previous job I spent several years covering China's economic and business beat, and contextualising the country's growth story - a pet topic for many editors and a cornerstone of many features, good and bad - usually required a few sentences on its origins. The starting point was the early 1990s and the relocation of low-end manufacturing from around the region to China, a land of low costs and scale of production.

Asia's private equity pioneers were there before all that. China and India were not on the radar; Japan was what it largely still is, an insular market; Australia had yet to see the corporate reforms that ushered in the buyout exponents; Hong Kong, Taiwan and bits of Southeast Asia accounted for the bulk of opportunities.

And these were, by today's standards, plain vanilla opportunities. Pitch an Indonesian jeanswear manufacturer (no brands, no retail, just a production line) to a GP now and you'd probably be laughed out of the office. Pre-1990, these were some of the most profitable investments. Similarly, private equity targets in tech manufacturing have evolved into more sophisticated, high-end operators, although several investors from the early days can claim to have backed businesses that are now under Acer.

Deal sizes were of course much smaller. A $30 million fund offered ample firepower for Asian investments, a figure that seems almost absurd when placed against the multi-billion dollar buyout vehicles now deemed appropriate for the region. This had consequences as to how much people were earning and how many staff they could employ - a 2% management fee on a $30 million fund wouldn't go far even back then.

I couldn't resist asking one industry participant at what point he became personally wealthy as a result of private equity. "In the early years it was hand-to-mouth and there were just three of us running the business for a long time," he replied. "Things started to change once the US guys got interested in the late 1990s and early 2000s."

Restructuring opportunities that emerged in the region in the aftermath of the Asian financial crisis certainly put the region on the map - J.C. Flowers and Ripplewood prospered from their investment in Long Term Credit Bank of Japan (now known as Shinsei Bank) in 2000, and Newbridge Capital did the same with Korea First Bank, which it rescued in 1999.

Those events belong to a different chapter in the history of the asset class in Asia, but their legacy lives on, particularly in terms of the relationship between private equity, government and financial services.

Last week, the South Korean government once again failed to offload Woori Finance Holdings after receiving no preliminary bids. Woori is one of the last financial sector assets that remains in state hands from the post-Asian financial crisis bailouts. Accusations that the likes Newbridge took advantage of Korea at a time of weakness to make lucrative investments, and the more recent messy fallout from Lone Star's involvement in Korea Exchange Bank mean a foreign private equity buyer is unlikely. Unfortunately, other interested parties appear to be thin on the ground.

Still young compared to the markets in Europe and North America, Asian private equity is already being influenced by its own history.

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• Topics
• Investments
• GPs
• Restructuring
• Financials
• J.C. Flowers & Co.
• Ripplewood Holdings
• Newbridge Capital
• Lone Star Funds
• Financial Services