AVCJ Private equity & Venture Forum 2012 AVCJ Private equity & Venture Forum 2012 europe hong kong 11 october 2012 13 - 16 november 2012 avcjeurope.com avcjforum.com ASIAN VENTURE CAPITAL JOURNAL Asia’s Private Equity News Source avcj.com September 18 2012 Volume 25 Number 35 Editor’s ViEwpoint Optimism over Japan’s buyout opportunities returns despite low GDP PRIVATE EQUITY ASIA growth Page 3 nEws Actis, Affi nity, Bain, Blackstone, Blue Sky, Carlyle, CITIC Private Equity, CVC, CVCI, IndoUS M&A ASIA Ventures, L Capital, Longreach, MBK, Motilal Oswal, PAG, Quay Partners, RBS, Temasek Page 4 Fund oF thE wEEk MGPA announces fi rst close of $652m Asia real The missing link estate fund Page 14 aVCJ rEsEarCh Are renminbi fund-of-funds a realistic solution to China’s LP shortage? Page 7 Data f ile Page 15 FoCus dEal oF thE wEEk Eff ective pitches The fi tness factor Communication key for Japan’s mid-cap NBC Capital sells Australian health club Page 11 Page 14 Private Equity & Venture Forum India 2012 6-7 December • Taj Lands End, Mumbai 13th Annual GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjindia.com Super Early Bird Offer: SavE USD500 if you register before 28 SEPTEMBER 2012 Distinguished speakers include: Ashishkumar Chauhan KEYNOTE Navin M Baby Interim Chief Executive Officer Vice President, Investments BOMBAY STOCK EXCHANGE KHALID ALI ALTURKI & SONS CO Mintoo Bhandari Shankar Narayanan Managing Partner Managing Director AION CAPITAL PARTNERS, THE CARLYLE GROUP APOLLO MANAGEMENT Sanjay Nayar Jay Park Managing Director and Chief Managing Director Executive Officer BLACKROCK PRIVATE EQUITY KKR INDIA PARTNERS Mukund Rajan Praneet Singh Managing Partner Managing Director TATA OPPORTUNITIES FUND SIGULER GUFF INDIA ADVISERS For the latest programme and a full list of speakers, visit avcjindia.com Contact us Registration: Anil Nathani T: +852 3411 4938 E: [email protected] Sponsorship: Darryl Mag T: +852 3411 4919 E: [email protected] Asia Series Partner Partners aureos capital Cocktail Reception Host Knowledge Partners Showcase Partner avcjindia.com Editor’s ViEwpoint [email protected] ASIAN VENTURE CAPITAL JOURNAL Managing Editor Buyout firms Tim Burroughs (852) 3411 4909 Senior Editor Brian McLeod (1) 604 215 1416 PRIVATE EQUITY ASIA Associate Editor Susannah Birkwood (852) 3411 4908 Staff Writer Alvina Yuen (852) 3411 4907 optimistic about Creative Director Dicky Tang M&A ASIA Designers Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow Senior Research Manager Japan again Helen Lee Research Manager Alfred Lam Research Associates Kaho Mak, Jason Chong Circulation Manager Sally Yip Circulation Administrator Prudence Lau A couple of weeks Ago, I wrote About been driven in part by a greater sense of urgency Senior Manager, Delegate Sales the signs of positive change in the Japanese among the big corporations. As for smaller Anil Nathani private equity industry and that we can be Japanese companies, especially those with an Senior Marketing Manager optimistic again about Japan (See page 3 of enterprise value of $500 million to $2 billion, a Stacey Cross the September 4th edition of AVCJ). This view major selling point would be helping them with Director, Business Development has more or less been shared by many of our their China strategy, as their ability to expand in Darryl Mag speakers at our recently concluded AVCJ Private China is going to be critical part of their future. Manager, Business Development Equity & Venture Forum - Japan, especially those The recent political tension between the two Samuel Lau in the buyout space. countries over the Diaoyu/Senkaku Islands may Sales Coordinator Debbie Koo In the opening keynote panel chaired by dampen the short-term interest. HarbourVest’s Sebastiaan Van Den Berg, the Credit needs to be given to the private Conference Managers Jonathon Cohen, Zachary Reff, Sarah Doyle Japan heads of some of the largest private equity equity firms that are targeting growth segments Conference Administrator firms in the world were saying that the scope in an economy that is flat-lining. Bain Capital, Amelie Poon for private equity buyouts in Japan is widening the most active firm in Japan (in terms of Conference Coordinator Fiona Keung, Jovial Chung due to falling public market valuations and clear volume), has recently invested in two such Publisher & General Manager opportunities for value-add within portfolio opportunities:Skylark, the restaurant chain it Allen Lee companies. bought last year from Nomura Principal Finance Managing Director The panel, which comprised of speakers from and Mitsui for $2.1 billion plus debt, and Jupiter Jonathon Whiteley Bain, KKR, PAG and TPG, argued that pricing for Shop Channel, Japan’s number one TV shopping Chairman Emeritus Japanese companies is much more attractive channel. Dan Schwartz than it has been historically. It is worth noting According to Shintaro Hori, chairman at Bain that while US and Chinese companies are trading Capital Japan, the former was attractive because at similar levels in terms of EBITDA and price-to- of its good price-line strategies that ensure incisive Media book, the Nikkei 225 Index is trading 20% lower the restaurant chain caters to most consumer 20th Floor, at 6x EBITDA. On a relative basis therefore, Japan segments. As for the latter, their core customers, Tower 2, Admiralty Centre 18 Harcourt Road, is cheap right now. There are more than 800 women aged 40 years and over are spending Admiralty, Hong Kong companies valued between $150 million and JPY10,000 ($127) a week. With an expanding T. (852) 3411-4900 F. (852) 3411-4999 $700 million, and 60% of them are trading at less population of savings-rich females, the potential E. [email protected] URL. avcj.com than 0.8x book value. for growth is almost certainly assured. More importantly, Japan is one of few markets Finally, as for returns, TPG’s Jun Tsusaka Beijing representative office Room 1805, Building 10, where control-oriented buyout deals are possible. dispelled common perceptions of Japan as a low- Jianwai SOHO, 39 East 3rd-Ring Road, By contrast, in China, Asia’s most active market, return market for private equity. According to Chaoyang District, Beijing 100 022, China almost 90% of deals completed last year was for him, TPG’s Japan return of 2.4x is ahead of India T. (86) 10-5869-6205 minority stakes. That number increases to 94% in and Southeast Asia, which both returned 1.8x. F. (86) 10-5869-7461 E. [email protected] India, while the current hotbed of Southeast Asia So there you go. Buyout firms again are managed 75%. This obviously means that private maximum bullish on Japan. The Publisher reserves all rights herein. Reproduction in whole or equity investors can deliver more value-add in part is permitted only with the written consent of through operational improvement. AVCJ Group Limited. ISSN 1817-1648 Copyright © 2012 Speakers also observed that corporate Japan is more open to the idea of working with private equity partners, although ensuring alignment Allen Lee of interests remains a challenge. The changes, Publisher which have occurred over the last 10 years, have Asian Venture Capital Journal 3 Number 35 | Volume 25 | September 18 2012 | avcj.com nEws AsiA PAcific cVc, rBs raise $286m in billion term loan, a $200-300 million bridge-to- samsonite sell-down bond facility and a $450 million cash bridge. Affinity launches $3.5b CVC and Royal Bank of Scotland (RBS) have citic Pe backs take-private pan-Asia fund reportedly sold a combined 153.6 million shares bid for china’s 3sBio in Hong Kong-listed Samsonite International, Affinity Equity Partners is reportedly looking to the world’s biggest travel luggage company, CITIC Private Equity is supporting a $331 million raise up to $3.5 million for a new pan-regional for HK$2.22 billion ($286 million). The deal management buyout offer for NASDAQ-listed vehicle. The firm – which was founded by former accounted for roughly 10% of the company, with Chinese pharmaceuticals company 3SBio. It is the UBS Asia chairman KY Tang – has given MVision 65% of the shares sold by CVC and the remaining latest in a string of attempted take-private deals the mandate as placement agent. The Asia- 35% by RBS. for US-traded Chinese firms that are perceived to focused private equity firm has already begun be undervalued by the public market. marketing the fund and has arranged a meeting with LPs for later this month north AsiA carlyle offers LPs quick exit Yahoo Japan launches route from Asia fund Vc fund The Carlyle Group has introduced a liquidity mechanism for its latest Asia buyout fund that Yahoo Japan has joined the corporate venture facilitates the exit of LPs that want to sell their capital club by launching a JPY1 billion ($12.8 positions in the vehicle, industry participants tell million) fund.. It will principally target start-ups AVCJ. The private equity firm has used a similar in the smart phone, internet advertising and mechanism elsewhere in the world, but this is cloud computing spaces. The VC subsidiary - YJ the first time it has been deployed in Asia. The shares were purchased by a small number Capital - will be entirely sponsored by Yahoo’s of global investors through a reverse enquiry. own balance sheet. PAG announces final close The vendors sold at HK$14.50 per share, which of $2.4b on Asia fund represents a 3.3% discount to Friday’s closing MBK targets $2.25b for price. Goldman Sachs was the sole book- fund iii PAG has announced a final close on its debut runner. CVC bought Samsonite in 2007 for $1.7 private equity fund at $2.4 billion. PAG Asia I is billion, including debt, and funded most of the MBK Partners has launched its third buyout fund a pan-regional buyout vehicle with a particular transaction with a loan from RBS. with a target of $2.25 billion, AVCJ has been told. focus on China. It is the largest Asia fund to It is the latest in a string of large-cap pan-regional achieve a final close since Baring Private Equity funds to enter the market, joining the likes of KKR, Asia raised $2.46 billion for its fifth vehicle in growing SMEs across sectors such as food, energy TPG Capital, The Carlyle Group and RRJ Capital. January 2011. and housing. MBK Partners III will follow a similar strategy to its predecessor. Actis appoints two new Quay poaches reed from Global buyout firms see directors in Asia Pantheon for us rich pickings in Japan Actis has appointed two new directors, Danny Australian private equity fund-of-funds and Koh and Max Lin, who will be based in Singapore advisory firm Quay Partners has hired Jeffrey The scope for private equity buyouts in Japan is and Beijing, respectively. Koh will be head of deal Reed from Pantheon Ventures, the UK fund- widening due to falling public market valuations origination for Southeast Asia while Lin will focus of-funds, to help manage its US operations in and clear opportunities for value-add within on China investments. Koh started his career San Francisco. Reed, a secondary investment portfolio companies, according to panelists at in the tax division of PricewaterhouseCoopers specialist, joins Ian Deas, also ex-Pantheon, who the AVCJ Japan Forum. “Pricing is much more (PwC), before moving to its corporate finance has been with Quay Partners since 2010. attractive than it has been historically,” said Jun and then private equity groups. Tsusaka, partner and managing director at TPG GreAter chinA Capital Japan. AustrALAsiA Longreach nears $400m Banks invited to finance final close on second fund Blue sky makes new focus Media buyout executive appointment The Longreach Group is nearing a final close Banks in Asia are reportedly being approached of around $400 million for its second fund. An Blue Sky Alternative Investments has hired to provide up to $1.7 billion in financing for the announcement is expected within a month, Lachlan McMurdo from Bain & Company as private equity-backed management buyout of market sources told AVCJ. The Japan-focused investment manager of the private equity NASDAQ-listed Focus Media Holding. Citigroup, GP has spent more than two years on the division. He will be responsible for the company’s Credit Suisse and DBS Bank have assembled a fundraising trail. It held a first close of $135 existing portfolio, as well as covering rapidly package comprising a term loan of up to $1 million in March 2011. 4 avcj.com | September 18 2012 | Volume 25 | Number 35 nEws south AsiA cVci achieves 2x return on biopharmaceutical company that focuses on chinfon Vietnam exit dermatology, has raised $3.3 million in Series A financing. The round was led by IndoUS Venture Blackstone ups financial Citi Venture Capital International (CVCI) has Partners, with Aarin Capital and existing investor technologies stake to 6% achieved a return of 2x on its exit from Chinfon Navam Capital also participating. Established in Vietnam, after holding the company for four years. August 2010, Vyome develops treatments for a The Blackstone Group has increased its “CVCI has spent six to nine months to search variety of medical conditions including fungal stake in financial services company Financial for an exit until it finally divested the company and bacterial infections. Technologies India to more than 6% through six months ago to a strategic investor,” a source open market transactions. Investing via its entity familiar with the transaction told AVCJ. “The exit carlyle, Multiples back Blackstone GPV Capital Partners Mauritius VI FII, has been the largest exit in Vietnam so far.” south indian Bank the private equity firm has snapped up an extra Chinfon, which CVCI invested in in 2008, 1.1% stake or 5,24,054 shares in the company. is one of the largest cement manufacturers in The Carlyle Group and Multiples Alternate Asset Vietnam, with clinker and cement production Management have participated in a qualified Motilal oswal Pe invests in capacity of 3.2 million tons and 4.2 million tons, institutional placement (QIP) for South Indian indian realty project respectively. Bank, which raised INR4.4 billion ($80 million) from eight investors. The bank launched the Motilal Oswal Private Equity Advisors has teamed allotment program on September 3 and sold up with two real estate firms - Supreme Universal 200 million shares, or a 15% stake, at a price of and the Mirchandani Group – to invest INR600 INR22.13 per share. million ($11 million) in an Indian realty project. The investment, made via the INR2 billion India carlyle-backed haier offers Realty Excellence Fund, aims to develop a 16-acre $705m for fisher & Paykel land parcel located at Somatane, in Pune. Carlyle-backed Haier Group has put in a NZ$869 L capital Asia in talks to million ($705 million) buyout offer for Fisher & back Kingdom of Dreams Paykel Appliances (F&P), the New Zealand-based kitchen and appliance manufacturer. The Chinese LVMH Group’s private equity investment arm company is willing to pay NZ$1.20 per share in L Capital is reportedly investing around INR2 cash. Haier New Zealand Investment Holding billion ($37 million) in The Great India Nautanki Equity, could raise almost $1 billion. Company, a wholly-owned subsidiary of Haier Company (GINC), which runs the Gurgaon- Group, already owns 20% of F&P. based Kingdom of Dreams, an entertainment Pe-backed Max india sells destination designed to play host to live musicals, polypropylene film unit temasek, Bain in race for Indian culture, heritage, art and cuisine. The two shriram transport stake parties have already signed a term sheet. Max India, which is backed by Goldman Sachs, International Financial Corporation (IFC) and Temasek Holdings, Bain Capital and Piramal creation investments leads Temasek Holdings, has sold its biaxially oriented Group, a conglomerate run by Ajay Piramal, sonata finance round polypropylene (BOPP) film division to Germany’s are reportedly leading the race to acquire TPG Treofan for INR5.4 billion ($97 million). The Capital’s 20% stake in Shriram Transport Finance Sonata Finance, an Indian microfinance divestment allows the Indian company to focus Corp (STFC), one of the leading commercial institution (MFI), has raised INR350 million ($6.4 on its core healthcare and insurance businesses. vehicle lenders in India. The transaction is million) in a Series D financing round led by Max India has sold various units over the years. expected to close next month. TPG is said to have Chicago-based Creation Investments. Promoter been looking to exit STFC since early last year. Anup Kumar Singh and two existing investors Motilal oswal Pe to set up in the company - family office the Michael and real estate fund southeAst AsiA Susan Dell Foundation and local economist Swaminathan Aiyar – also participated in this Motilal Oswal Private Equity is planning to set round. up a real estate fund worth up to INR6 billion capstone Partners opens ($108 million). The fund will tap institutional office in Asia Goldman, temasek to part- investors as well as its traditional LP base of high exit Bharti infratel via iPo net worth individuals (HNWIs) because new Placement agent Capstone Partners has opened alternate investment fund guidelines have raised its maiden Asia office in Singapore. Two senior Goldman Sachs, Temasek and Nomura are among the minimum ticket size for investments to INR10 executives - Alexandre Schmitz and Teena Jilka – the investors planning to offload part of their million from INR2.5 million. were hired to lead the firm’s operations. Schmitz shareholdings in the mobile phone tower unit will be the head of Capstone’s operations in of Bharti Infratel, the Indian telecommunications indous Ventures backs Asia. Prior to the appointment, he served as the infrastructure firm, which has filed for an IPO. Vyome Biosciences investment director at PAI Partners, and was a Bharti Infratel, which is also backed by PE players member of the executive committee at Cobepa, include KKR, India Equity Partners and Axa Private Vyome Biosciences, a Delhi-based and CEO of BeCapital. 5 Number 35 | Volume 25 | September 18 2012 | avcj.com Customized Research Report Asian Private Equity Data Made Simple AVCJ Research can provide your firm with timely and accurate research support to help you simplify and expedite your workflow. We conduct in-depth research and provide insightful analysis in a bespoke report that fully meets your data requirements. AVCJ’s industry standard data is used by the world’s leading firms in their fundraising, investor relations communications and deal due diligence activities. AVCJ Customized Data Service includes: ✔ Pan-Asian Industry Reviews/Regional Repots – timely updates ✔ Specific industry and financing stage research ✔ Comprehensive statistics on investments and funds ✔ Exits strategic analysis ✔ Market peers comparison To understand how AVCJ Research can help you with your data needs, please call: 852-34114956 or email [email protected] avcj.com CoVEr story [email protected] China’s FOF experiment China has started to witness the emergence of renminbi-denominated fund-of-funds, but only a few institutional and individual investors appreciate their investment philosophy MAgIc stone AlternAtIve InvestMent term investment philosophy of such products. denominated fund-of-funds had reached a total is one of the first investment firms in China “Raising renminbi has been a challenge so value of RMB3.3billion. to experiment in the renminbi fund-of-funds far in China, but we do see the need to develop According to market sources, the US-listed market. However, getting things right in China’s our industry with other players,” Jenny Zeng, company first began its private equity business nascent private equity market is never an easy managing partner of Magic Stone, tells AVCJ. by setting up centers in each city to cold-call task. “Building up a fund-of-funds takes you years of individuals with bank balances above a certain Given its management profile, Magic Stone experience and any new players which come level, in a move to match prospective investors - led by a team of Chinese PE veterans including without preparation and patience are not going with GPs. The business model has proved itself as former founding partner of Jade Invest Jenny to be very successful.” very profitable in the last few years, with another Zeng and ex-president of China Venture Capital 6,000-8,000 copy-cat operations having been set and Private Equity Association Frances Huang Nascent market up in Shanghai and Beijing. - has tried to approach the local fund-of-funds The renminbi fund-of-funds market first started “People were invited to events where GPs space with institutional practices, unlike many to emerge to any great extent in late 2009, when could introduce their funds. After that you had of its local counterparts. It has established a China witnessed ample liquidity and investors to sign a document,” a pan-Asian LP who joined database that houses information from more were impressed by the high returns generated one of these matching events recalls. “Because of than 1,000 GPs, it follows precise due diligence from private equity investments. At that time, a the lack of channels to LPs, these intermediaries and investment processes, and organizes tailor- large number of intermediaries – some of which – who have developed a large network of HNWIs made roundtables to bring together institutional called themselves fund-of-funds – were set – have the bargaining power to charge up to 3% investors and high net worth individuals (HNWIs) up with the primary motive of pairing up rich up front and half of the carried interest from GPs. and entrepreneurs, to talk about the changing individuals with the large number of GPs that No one has ever done that.” dynamics in the industry. were flocking into the market. While local structures doe serve as a bridge Its international approach, however, has not Noah Holdings has been a classical example. between retail investors and GPs that are thirsty borne fruit just yet. The private equity player Founded in 2005, the New York-listed company for capital, most of them focus on screening the launched its maiden renminbi-denominated fund-of-funds in January 2009 with a target of China's fundraising breakdown by value RMB1 billion ($158 million). The vehicle – which is yet to count institutional investors as its LPs 1% – is still on the fundraising trail after more than 2% three years, according to a source close with the 5% 9% 12% situation. Buyout Fund It goes without saying that Magic Stone – 8% 32% Fund of Funds which also manages US dollar fund-of-funds 24% 2% Jan-Aug Infrastructure Fund Jan-Aug - is not the only recent player to attempt the 2011 42% PE Fund 2012 renminbi market. According to AVCJ Research, Special Situation Fund among the 80 disclosed renminbi fund-of- VC Fund 18% 45% funds in China, over half of them were raised between 2009 and 2011. However, out of the top 10 vehicles by value, nine of them are government-backed, with the remaining one – Source: AVCJ Research Noah’s Jingzhao Fund – entirely raised private placements by HNWIs. There is no doubt that a maturing renminbi distributes fixed income products and private most popular funds without an institutionalized fund-of-funds market will play a positive role equity funds that are originated in China. Its due diligence system. Although some of these in introducing Chinese investors to a more financial services also involve fundraising for GPs, so-called fund-of-funds have generated good institutionalized investment approach, but including the likes of CDH Investments, Sequoia returns from China’s previous private equity a number of private equity players question Capital and SAIF Partners. When these funds frenzy, it is questionable whether they will whether this is a realistic goal in short term, were oversubscribed, Noah was said to channel be sustainable when clients become more given that fund-of-funds in China are still largely the extra capital into starting a fund-of-funds sophisticated. constrained by institutional and individual business. In February, Jingbo Wang, founder of In addition, given that IPO exit multiples investors too immature to appreciate the long- Noah, told AVCJ that the company’s renminbi- have fallen sharply in domestic bourses in recent 7 Number 35 | Volume 25 | September 18 2012 | avcj.com CoVEr story [email protected] Top 10 Renminbi-denominated fund-of-funds vehicles. Shanghai Venture Capital is a case in point. target current The venture capital management company – fund launch size size state- which was founded in 1999 – now manages fundname status date ($mln) ($mln) backed? RMB600 million for the Shanghai government. In Guochuang Kaiyuan Private Equity Fund (CDB Second Dec-10 6000 1416 Yes 2006, Shanghai Pudong Science and Technology Capital) Closed Investment (PDSTI), another state-backed Jingzhao Fund (Noah Holdings) Final Closed Apr-10 732 787 No manager, also closed its first fund-of-funds Zhongguancun Venture Capital Introduced Fund Final Closed Nov-05 604 787 Yes at RMB1 billion. The private equity manager Beijing Private Equity Investment & First Closed Sep-09 1465 315 Yes subsequently closed two more similar funds in Development Fund 2009 and 2012 for Anhui and Hubei, respectively. Tianjin Binhai New Area Venture Capital Final Closed Jul-07 262 315 Yes Diction Ying, managing director of investment Introduced Fund management at PDSTI, tells AVCJ that their Hunan Venture Investment Guidence Fund Final Closed Dec-10 150 157 Yes funds were launched to serve two underlying Shanghai Pudong New Area Venture Capital Final Closed Apr-06 125 157 Yes objectives: first, fund-of-funds may achieve better Fund-of-Funds (Pudong Incubation Fund) financial efficiency when compared with direct Suzhou Industrial Park Venture Capital Guidance Final Closed May-06 125 157 Yes Fund (Suzhou Ventures Group) investments done by the government; second, investing into GPs will enhance the overall Venture Capital Guiding Fund of Shanghai Final Closed Jan-10 439 157 Yes (Shanghai Venture Capital) development of private equity and venture Source: AVCJ Research capital within the region. “Given that every single dollar of our fund months, the more challenging fundraising China Life and China Insurance are all said to is channeled through our balance sheet, we environment may be an indication that investors have hired consultants to provide private equity are not a real fund-of-funds from a fundraising wanting speedy returns have now lost their advice instead of outsourcing their investment angle,” says Ying. “However, with the lack of appetite for the asset class. “There is no more activity. Small insurance companies – which clear regulations, participation from mature money from these LPs compared to a year have not been able to develop their own fund institutions - rather than individuals - is more ago and they don’t want to maintain their management teams – will be potential investors appropriate for the development of the whole commitments,” says Ludvig Nilsson, managing for local fund-of-funds, but none of them have fund-of-funds industry.” director of Jade Invest. “So a lot of renminbi LPs put their thoughts into action so far. While the rationale for the existence of these are selling their stakes and there is currently a big In addition, given the fact that most guidance funds is largely driven by government mess.” private equity and venture capital funds in incentives to promote private equity and attract China are not specialized funds, fund-of-funds people to set up shops in their specific regions, Immature LP Base do not necessarily serve a diversification it is not surprising that they often work with As HNWIs fail to guarantee long-term capital purpose, considering there is an extra layer of a different mandate, with less emphasis on sources for local currency funds, PE players management fees compared to directly investing financial returns. Jade Invest, for example, was eyes on the few institutional investors that may into GPs. According to a source close to the China approached but did not end up going to any of have the potential to deploy a large amount of Insurance Regulatory Commission (CIRC), while these partnerships as it doesn’t see the alignment renminbi capital in the private equity sector. insurers do not see local fund-of-funds being too of interests. In one corner, the National Social Security different from what they have internally, none of Fund (NSSF) is allowed to deploy as much as them has even remotely considered investing in A learning process RMB90 billion to the asset class; in the other, the such vehicles. Although many of the guidance funds do not top 10 insurance companies - under the current “The key problem is that no one in the consider financial numbers as their primary regulatory system - also have a potential private market is willing to pay for manager selection. objective, they also have to achieve reasonable equity allocation of more than RMB250 billion, Understandably, it is difficult to appreciate the returns in order to defend the feasibility of James Zheng, managing director of Fosun Capital value of manager selection until you have seen establishing a private equity industry in their Group, claims, citing official figures. low or negative returns from brand name funds regions. As a result, some guidance funds have “If we apply the global average - which is that and deals,” says Jade Invest’s Nilsson. “Local started to hire talented individuals from the fund-of-funds account for roughly 10% of total institutions don’t want to pay because they market, in a move to transform themselves private equity commitments - an existing RMB34 can set up their own teams, neither do HNWIs into commercial-driven entities that can make billion can be channeled from the NSSF and local because they just appreciate the placement meaningful investments. insurers, not to mention large conglomerates and solutions, which provide them discounts to some Suzhou Ventures has been the most HNWIs,” Zheng adds. “Yet, most of the Chinese famous GPs.” successful case so far. In 2006, it launched a RMB1 investors want to do private equity investments billion fund-of-funds, Suzhou Industrial Park by themselves as they believe they can make Government guidance funds Venture Capital Guidance Fund, alongside China money faster than hiring a manager.” Given the limited LP base, a recent trend is Development Bank (CDB). Four years later, the For example, the NSSF is already large and that private equity players have entered into pair launched another fund-of-funds targeting sophisticated enough to invest into private partnerships with local governments and state- RMB20 billion to invest in venture capital funds equity and venture capital funds through its owned entities to form guidance funds, which with an investment range between RMB200 in-house fund management professionals. work similarly to fund-of-funds in that they invest million and RMB1.5 billion. The fund is expected Insurance companies such as Ping An Insurance, in various private equity and venture capital to close at the end of 2012. 8 avcj.com | September 18 2012 | Volume 25 | Number 35 CoVEr story [email protected] “It’s true that we started off being a guidance of-funds in the long run because it is a market Rebecca Xu, co-founder and managing director fund, but we have gone through restructuring that you don’t want to miss,” says Judy Qing Ye, of Asia Alternatives. “I would not be surprised processes to become a market-driven entity. managing partner of Yi Mei Capital. “Unless you if any of these players became a real fund-of- Now we are open to various investment regions manage renminb, you can’t understand the funds, given that investors will eventually need and stages,” Jipeng Wang, partner of Suzhou depth of the market. You can never evaluate the professional fund management services when Ventures Group, tells AVCJ, adding that the market by just taking a Western point of view.” they are overwhelmed by the market complexity company’s LP base will consist of institutional Globally, mature fund-of-funds markets are as time goes by.” investors, fi nancial investors and big private often driven by two kinds of demand. First, small Foreign players, which have institutional companies in the future. institutional and individual investors – who do platforms and long-term experience, may also While Suzhou Ventures has been the fi rst not have the expertise in fund management – help educate the market. At the moment, there case that has gradually taken a market-driven rely on fund managers who have the professional are plenty international fund-of-funds already approach and attracted the continuous support knowledge and skills to aggregate their capital working in the country, although they are using of CDB, more similar cases are expected to and get access to top-tier GPs. Second, large US dollars and investing in off shore funds. Based emerge as time goes by. Given that guidance institutional investors hire fund-of-funds to on the most recent defi nition from the National funds are currently the only local groups which access small-cap or specialized funds in areas in Development and Reform Commission (NDRC), have experience betting on a sizable number which they don’t have in-house expertise. any money managed by foreign GPs is still of funds, they would be in the best position to Similarly, once the LP base in China develops defi ned as foreign capital. As a result, GPs may become the next wave of fund-of-funds in China. to a stage at which it can embrace diff erent have to rely on local fund-of-funds, if any, to Some overseas players also recognize the types of demand, it will be time for renminbi enjoy domestic treatment. opportunity to test the water through an fund-of-funds to become a meaningful part “The race between fund-of-funds players will initial partnership with local governments. of the private equity supply chain. It’s possible be determined by whether pure local fund-of- EMAlternatives, through its China affi liate YiMei that Intermediaries - which have developed funds can develop institutionalized practices and Capital Management, launched a local currency a good client-base and start to adopt a more a track record before the market opens up to separate account with the MinHang district of international approach – will emerge as another allow groups like us to do renminbi fundraising,” Shanghai Municipal Government to invest in impetus for the fund-of-funds market, though says Vincent Huang, partner at Pantheon venture capital and private equity funds across not immediately. Ventures. “The entry barrier is still very high for the country. The local government has so far “Some of the intermediaries have been able renminbi fund-of-funds targeting institutional invested RMB500 million. to bring their clients good quality renminbi GPs LPs. For any group that meets the hurdle, there is “It’s the right move to develop renminbi fund- based on their own due diligence work” says very little competition and the market is huge.” Asia has over US$318 billion in private equity funds under management 8th annual edition 88th annual edition ASIAN VE NTURE CAPITAL JOURNAL 77th annual edition ASIAN VE NTURE CAPITAL JOURNAL ASIAN VE NTURE CAPITAL JOURNAL AAVVCCJJ pprriivvaattee eeqquuiittyy aanndd PRIVATE EQUITY ASIA AAVVCCJJ pprriivvaattee eeqquuiittyy aanndd PRIVATE EQUITY ASIA vveennttuurree ccaappiittaall rreeppoorrtt M&A AS IA vveennttuurree ccaappiittaall rreeppoorrtt M&A AS IA AVCJ private equity and PRIVATE EQUITY ASIA AAuussttrraallaassiiaa India venture capital report M&A AS IA 2012 2012 Just where and how are these funds distributed? Read all about it in AVCJ Private China Equity and Venture Capital Report, the annual series of regional reports by the leading 2012 source of information on Asian private equity, venture capital and M&A. Reviewing the year’s activity in the industry, the regional reports are filled with up-to-date data and intelligence 88th annual edition 77th annual edition on fundraising, investments, exits and ASIAN VE NTURE CAPITAL JOURNAL ASIAN VE NTURE CAPITAL JOURNAL AAVVCCJJ pprriivvaattee eeqquuiittyy aanndd PRIVATE EQUITY ASIA AAVVCCJJ pprriivvaattee eeqquuiittyy aanndd PRIVATE EQUITY ASIA M&A. They also feature information vNveennttouurreer cctaahppiitt aaAll rreeppsooirratt M&A AS IA vSvSeennoottuuuurree ttccaahhppiitteeaall aarreessppoottrrtt AAssiiaaM&A AS IA on key companies and transactions. Offering global perspective alongside 2012 2012 local opportunities, the regional reports include Australasia, China, India, North Asia, and Southeast Asia. For more information or to order, call Sally Yip at +(852) 3411 4921 or email [email protected]. * as of September 30, 2011. Source: AVCJ avcj.com Private Equity & Venture Forum Europe 2012 11 October 2012, No.4 Hamilton Place, London GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjeurope.com Asia Calling: Finding growth in a global landscape of volatility Distinguished global speakers include: Joseph Y. Bae Roy Kuan Managing Partner Managing Partner KKR ASIA CVC CAPITAL PARTNERS Simon Pillar Mukund Rajan Managing Director Managing Partner PACIFIC EQUITY PARTNERS TATA OPPORTUNITIES FUND For the latest programme and full list of speakers, visit avcjeurope.com. Attending Limited Partners include: AlpInvest Partners IFM Paul Capital Belmont Global Advisors (UK) Ltd Industriens Pension QWin Capital British Steel Pension Fund MetLife Investments Limited Squadron Capital Capital Dynamics Northleaf Capital TfL Pension Fund Coller Capital OPTrust Private Markets Group Wega support GmbH Contact us Registration: Anil Nathani Sponsorship: Darryl Mag T: +852 3411 4938 E: [email protected] T: +852 3411 4919 E: [email protected] Lead Sponsor Co-Sponsor Capital Partners Supporting Organisation Media Partners unquote avcjeurope.com
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