Beyond the tapering terror

Despite being an active industry - on an institutional basis - for around three decades, private equity in Asia remains a difficult business to do well. This is, of course, is stating obvious and something most readers know firsthand. The usual list of culprits comes easily to mind but I would like to highlight market turbulence as factor that affects emerging markets more than their developed counterparts.

Yet, unlike developed markets, Asia's emerging economies are still on a growth trajectory and recovery can be quick.

Indonesia is a good example. A few years ago it was the region's hottest private equity destination and the main reason why Southeast Asia suddenly emerged on investors' radar screens again. This reemergence has given birth to a number of regionally competitive private equity firms and convinced a number of global players to open local offices - or at least make more regular trips from Singapore.

Today, Jakarta-based dealmakers seem to be a bit lower profile although probably not less busy.

Indonesian GPs have to come to terms with a drop in value of portfolios held by US dollar-denominated funds. Like India, Indonesia has suffered from the financial malaise that has affected a number of emerging markets, causing - amongst other things - a slowdown in the economy and a fall of around 25% in the value of the rupiah. Portfolio management and investor relations have become much more important.

Despite the confusion, deals are still being done. Indeed, 2013 saw a slight year-on-year increase in investment with around $657 million deployed, although a couple of infrastructure deals featured prominently.

Speaking with GPs in a recent Jakarta visit, they say that transactions are still available, although few of the headline grabbing variety seen in 2009-2010 - and they wouldn't touch these anyway. Valuations remain an obstacle because business owners have yet to come to terms with the market reality and are still expect 2010 prices. The expensive asset prices are further enhanced by the high rates Indonesian banks charge for lending money.

Most of my conversations came to the conclusion that is a matter of time before all parties become realigned and activity picks up.

Another factor affecting Indonesia is the parliamentary and presidential elections in April and July, respectively. Truth be told, most GPs I've spoken to - though they have their favorites - aren't overly concerned about the outcome.

Every party knows that economic stability and growth are important and will announce some form of stimulation package. Certain parties are perceived as being more business-friendly, but private equity, being (mostly) foreign capital and smart money, has become an honored guest as governments begin to understand the value the industry brings.

Without trying to over complicate the situation, Indonesia is definitely a bit down but it is far from out. The country has vast natural resources, a growing consumer class and a relatively untapped middle market, so it remains what private equity dreams are made off. Finally, I have faith in the fact that many of the world's most successful funds are either based there or have a presence. Capital will always drive deals.

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• Topics
• Southeast Asia
• Investments
• GPs
• Southeast Asia
• Indonesia