Buying into European buyout
A number of recent closings by European buyout funds have included sizeable commitments from Asian institutions looking to broaden and deepen their allocations to the asset class. Are Asian institutions now looking less at US buyout funds and more at their European counterparts? Ricky Morton reports.
As economies in Asia continue to emerge from the crisis of the late 1990s, the region’s institutional investors who have an appetite for private equity are looking for investment opportunities further afield. The move is intended to not only hedge risk but also help maximise returns. Evidence of this increased international appetite can be found with a number of recent closings by European buyout funds where Asian institutions have made significant commitments, not least of which has been the €5.1bn raised for Permira’s third fund.
Charles Sherwood, a Permira partner and key member of the fund raising team at the firm, has no hesitation in marking out the importance of developing a dialogue with Asian investors. Speaking at the Asia Venture Capital Journal’s recent Asia Venture Forum conference in London, he highlighted the growing contribution made by Asian limited partners (LPs) to international funds. This segment, who contributed nine per cent of the capital at the fund’s final close (representing €459m), made up seven per cent of the fund’s total LP count of 134 (nine institutions). This level of commitment has helped put the region on the map as a serious source of capital, and for Sherwood, Asia will be “a major source of funds for European private equity down the road.” The fact that fellow buyout operators Terra Firma and Doughty Hanson have secured commitments from Asian institutions totalling 20 and 25 per cent respectively of total funds raised at their latest closings provides further testimony to the growing role of Asian institutions in European private equity.
“The turning point for Asia was the economic crisis of the late 1990s,” explains David Goss, co-managing director at UOB Global Capital, the international investment arm of Singapore-based financial services group UOB that has partnered with Hermes Private Equity Management to provide a private equity fund of funds product to UOB clients. “Asian institutions always understood the principles of diversification, but people were happy to invest locally in what was the fastest growing economic region in the world at the time.”
According to data from the EVCA, Asian investment in pan-European private equity funds has hovered around the three per cent of total capital raised mark since 1999. Last year, European funds raised €687m from Asian institutions, equating to 2.5 per cent of the overall total. Contributions to the three aforementioned funds would put the total raised this year to October from Asian investors at more than €1bn already.
US buyout has been a core allocation
Nonetheless, European private equity firms still have some way to go to match their US counterparts who have been able to attract significant support from the Asian buy side. GIC Special Investments, the private equity investment unit of the Government of Singapore, commits about 50 per cent of its annual $1bn private equity allocation to US funds, according to Eng Seng Ang, senior vice president at GIC. In comparison, Europe currently accounts for a third of GIC’s private equity commitments, despite the fact that, in Seng Ang’s own words, Europe has outperformed US and Asia in the firm’s portfolio. Nippon Life Insurance International, which manages the alternative investment programme for Japanese insurance giant Nippon Life, allocates only 20 per cent to Europe, with 70 per cent going to US funds.
“The gap between the US and Europe is closing,” says Eng Seng Ang. “Our main task now is to find the best managers.” Despite the narrowing difference between the two markets, the question remains as to whether European firms will be able to attract some of the capital currently being channelled to US firms. David Goss at UOB Global Capital thinks so. “European private equity presents a unique opportunity at present. There is no political risk, the currency risk is reduced because of the stability of the Euro, and the market is still relatively underdeveloped when compared with the US, which is at the top of the market.”
Lack of profile
One problem faced by the majority of European GPs is a lack of profile in Asia’s key markets, making it difficult for investors in the region to get a feel for what is going on in the market. “Many people know Carlyle in Asia,” says Tuck Seng Low, partner at STAC Partners, an independent corporate finance advisory practice focused on Asia. “European firms have a lot to do increase their exposure.”
“There remains a very large number of Asian institutions that have not yet invested in the asset class,” continues Low. Both Low and Goss agree that a greater presence in the local market is required before Asian institutions fully embrace European private equity. “Bricks and mortar are a very potent factor,” says Goss, pinpointing the need for European firms to be on the ground in Asia. “The Middle East, Europe and the US are characterised by pools of wealth,” he says. “Asia, and China in particular, are better characterised as accumulators of wealth. As a result, European firms are going to have to look to Asia, where the money is.”
Firms set up shop in Singapore
Two private equity firms unveiled plans to launch their first offices in Asia Pacific at the recent TechVenture Asia 2003, the annual technology and financing conference. Hamilton Lane and Apex Venture Partners have both confirmed plans to launch in Singapore.
“Singapore’s attractiveness as an Asian base of operations includes, amongst other things, the highly educated workforce, tax levels, stability of government and legal and accounting transparency,” said Wayne Harber, managing director at Hamilton Lane Advisors.
Since it was set up in 1991, Hamilton Lane has committed in excess of $26bn to the private equity asset class. Of the commitments made to date, approximately five per cent has been committed to Asian-based private equity fund opportunities.
Apex Venture Partners, an early stage venture capital firm headquartered in Chicago, also announced plans to open a new office in Singapore. “The Singapore government has adopted policies that have fuelled growth in the local venture capital industry and presented many opportunities to overseas venture capital funds and technology companies,” said Babu Ranganathan, partner at Apex.
Carlyle, LG miss out on Hanaro
Carlyle Group and LG Corp have been thwarted in their efforts to launch a rival bid for Korean telecoms group Hanaro Telecom. The winning bid from American International Group (AIG) to acquire a 39.6 per cent stake in Hanaro Telecom consists of a $500m equity injection from AIG and Newbridge Capital as well as a $600m loan. The deal, which saw the Development Bank of Singapore, JP Morgan and ABN Amro Bank fully underwrite the debt portion, was approved by shareholders in late October.
Earlier, the Carlyle/LG consortium had pledged to invest $634m in addition to a $700m long-term debt package arranged by Citigroup. The deal would have given the consortium, which already held 18 per cent in Hanaro through LG Corp, a 51 per cent stake in the company. The offer has been made at a 6.3 per cent premium to the offer proposed by the Newbridge/AIG consortium.
Funds turn to Islamic investors
Bahrain-based Kuwait Finance House and Intellectual Capital Partners Limited of New Zealand are launching a $100m private equity fund to invest solely in New Zealand and Australia.
The fund will be structured according to the Islamic law of Shari’ah, which dictates strict rules for Muslim investors and investments. For example, the Shari’ah prohibits charging or paying of interest, investment in certain forbidden industries such as armaments, gaming and alcohol and contractual uncertainty.
The fund will focus on providing “expansion capital” to allow companies to grow by entering new markets or introducing new products and will be operated by the New Zealand Australia Private Equity Fund Company, which has been incorporated in Bahrain and is regulated by the Bahrain Monetary Agency (BMA).
Kuwait Finance House and Intellectual Capital Partners will have an equal stake in the holding company – the latter will manage the fund.
News of the launch comes in the same month that US financial services company Guidance Financial Group, in conjunction with Malaysia-based private fund manager Navis Capital Partners, closed an Islamic private equity fund based in Asia on $86m.
CVC, Ironbridge, GIC acquire Australian property portfolio
A consortium of private equity firms including Ironbridge Capital, CVC Asia Pacific and GIC Special Investments have joined forces with management to acquire a portfolio of hospitals from Mayne Group, the Australian group which specialises in private health care services.
The portfolio consists of 41 hospitals in Australia and a further three based in Indonesia. The deal values the portfolio at A$813m ($561m).
The winning consortium beat a syndicate led by Macquarie Bank with hospital operators Ramsay Health Care and Benchmark Healthcare in what was a competitive auction process. “We had no necessity to sell this business, however given the level of interest and the value of the offers we received it became the most attractive proposition for the future of Mayne,” said Stuart James, Mayne’s group managing director and CEO.
US-India link up for new fund
US based investment banking firm Resource Financial Corporation has formed an alliance with Mumbai-based Brescon Corporate Advisors which will see the firms raise a $300m private equity fund. Indian American Capital Partners (IACP) will raise half of its capital from the US with the remainder coming from Indian institutions. Investments will be made in the $5m-30m range, although the typical investment will be around $20m.
Crystal Ventures raises $150m for Asian-US fund
US venture capital firm Crystal Ventures LLP has begun approaching potential investors for its new fund, seeking up to $150m to invest in Asian and US technology companies. The firm is targeting companies which can draw on the growing economic ties between the two regions.
“Our main focus is going to be on trans-Pacific technology companies,” Crystal Ventures managing director Joseph Tzeng told Dow Jones Newswires. “That goes both ways: US-based companies doing significant business in Asia, and Asia- or China-based companies doing significant business development or technology work in the US. We believe the centre of gravity for technology-based investment has shifted. It’s no longer UScentric. It has moved across the ocean to Asia.”
Up to 70 per cent of the fund will be raised from Asian investors – including those in Hong Kong, Taiwan, Singapore and mainland China – while the remainder will be drawn from the US. The minimum target for fund-raising is $80m, although the final total is expected to be between $100m and $120m.
Mizuho fund takes Seiko stake
Japan Industrial Partners, a private equity fund established by Mizuho Securities and consulting firm Bain and Company, is to take a 49 per cent stake in the electronics parts unit of Japanese watch maker Seiko Instruments, according to a report on Reuters. The deal is the second announced by Japan Industrial Partners since the fund was set up last November. The size of the transaction had not been disclosed.
Nokia Ventures sets up in Shanghai
Nokia Venture Partners, the venture capital unit of the Finnish mobile telephone manufacturer, has announced the launch of a new venture capital unit based in Shanghai.
In a statement, Nokia said the launch of the “New Business Development Center for Asia-Pacific Region” will provide earlystage financing for new business ideas from local companies. Nokia did not disclose the amount of funds being invested into the venture capital arm. The firm said the new unit will help develop new business opportunities outside of the Finnish mobile handset giant’s core businesses.
Nokia Venture Partners was launched in 1998 and has offices in Washington DC, London, Helsinki, Hertzelia, Seoul, Hong Kong and Tokyo in addition to its Silicon Valley headquarters.
Olympus Capital, Intel Capital invest in Nipuna
Satyam Computer Services has confirmed that Olympus Capital Holdings Asia and Intel Capital Corporation have invested $10m in Nipuna Services, Satyam’s business process outsourcing (BPO) subsidiary. A similar amount will be invested in the second phase, which is expected to close by December 2003, making a total investment of $20m.
Nipuna Services was established in June 2002 by Satyam to provide BPO services. Satyam will provide support to Nipuna, which has so far attracted six clients, as it builds up market share.
“IT outsourcing plays a key role in any company’s strategic direction,” said Kumar Shiralagi, managing director of Intel Capital India. “Intel Capital invests in companies like Nipuna Services Limited as we believe this business opportunity will assist in the acceleration and growth of the e-business industry.”
Tiger, Blueridge back eLong
Tiger Technology Fund and Blueridge Capital have invested $15m in ELong.com, a Chinese business travel portal. The capital will be used to develop and promote new products and to enhance eLong.com’s technology capability. ELong chairman Justin Tang said the investment was part of plans to list the business on Nasdaq. ELong is the largest domestic hotel and travel reservation company in China, and registers a monthly volume of more than 150,000 rooms and has more than 10m registered users.
ePlanet hires for Singapore launch
ePlanet Partners, a global venture capital firm headquartered in London, has hired Finian Tan, the head of investment banking for Malaysia and Singapore at Credit Suisse First Boston, as part of plans to step up its activities in Asia. Tan will join ePlanet as a managing partner and will be responsible for the firm’s global operations. He will also oversee the launch of a Singapore office. Prior to joining CSFB, Tan was a partner at California-based venture capital firm Draper Fisher Jurvetson where he headed the firm’s Asian operations. ePlanet Partners owns a stake in Draper Fisher.