Asian private equity must adapt to changed times

Panellists at the PEI Forum: Asia tell delegates in Hong Kong that the private equity industry in the region does not need a radical change in approach, but must accept the boom years are over.

The private equity industry in Asia must accept the harsher reality ushered in by the economic crisis to move forward, said key industry practitioners speaking at today’s Private Equity International Forum: Asia in Hong Kong.

“The past will not come back,” said Maarten Ruijs, managing partner and chief investment officer at pan-Asian buyout firm CVC Asia Pacific. “Trying to find the kind of deals we were used to in the past is not going to happen.”

KY Tang, chairman and managing partner of Hong Kong-based buyout firm Affinity Equity Partners stated some of the problems faced today by the private equity industry were due to it straying from the path of a more traditional approach to doing deals.

“The private equity model hasn’t broken; people have departed from it,” he commented.

Looking forward, Tang emphasised the need for more thorough due diligence around deals and a return to seeking out businesses with good fundamentals and strong management teams.

He said private equity practitioners had been partly responsible for the problems experienced by several portfolio companies, due to the overuse of leverage in the ‘boom’ period before the crisis.

Ruijs also said the inflated and unrealistic prices seen before the downturn began had been somewhat due to the rush of foreign firms eager to set up in Asia.

“There are many people who have done deals in Asia just to show the world that they can do a deal in Asia,” he said.

“To some extent, there has been a desire to transplant international multiples to this region. The joke was that the closer to the international dateline, the higher the multiple would be.”

Ruijs said many of these firms, attracted to the region by the notion it was “easier to make money here than in other places” have learned – perhaps the hard way – that this is not the case.

Summing up the sentiment among some of the region’s key investors, David Pierce, chief executive officer of Squadron Capital, said, “What I’m hearing is not so much a re-definition of the asset class, but more a return to fundamentals. It’s coming back from the heady days of the recent bubble to [the mentality] of value-add.”