KKR recently opened a Singapore office to oversee your Southeast Asian investments. Why now? Does this signal increased deal activity in Southeast Asia?
Over the past six years we have invested over $1 billion in this region – that makes Southeast Asia the second largest region after China for KKR Asia. Whenever we open an office in a specific geography, we need to have a very localised team to effectively cover the region. We have been spending time over the last few years to find and recruit that localised team, and we think that now we are at critical mass – with a few minor additions, we’ll basically round out the team at full strength. Second, we’re very serious when we open a new office, in any geography, because we want that office to be viewed as a long-term player – so it’s not, “Today the market’s hot, so I’ll open an office,” and then “Tomorrow it’s cold, I close the office”. Also, the business activity has now expanded to almost the entire Southeast Asian region, which means we’ll be very busy, not just in Singapore and Malaysia, but also in Indonesia and other markets. And that actually warrants a full-strength office in Singapore.
So far, KKR has not closed any deals in Indonesia and other smaller Southeast Asian markets. Why do you think that will change?
Closing a deal should not be the benchmark of success. We usually say, “Any fool can close a deal, as long as you pay the price.” We don’t necessarily want to rush in when the market is hot and when risk-returns are not balanced. But that doesn’t mean we’re not building the right relationships with the right families and the right business partners in those markets. When the market timing is correct, then we will make an investment. That’s our philosophy. We’ve been [building relationships in Southeast Asia] for four or five years. But we’re now able to build a wider relationship base, and this is very important because in emerging markets, information flow has never been perfect. Therefore, it takes a long time to understand the business and your partners and to get to know their aspirations.
Since relationships are so important, how does your firm build them in Southeast Asia in a way that earns your partners’ trust?
First of all, we always explain very clearly what we do. We do more than just provide the capital – we want to provide professional, business, and managerial experience. For most business people in Southeast Asia, this takes a while to settle in. So to help out, we usually give them case studies of what we’ve already done – for example, it is how we help the company build better internal management systems. Once they know what we do and they can see examples, they often welcome what we do. They even want welcome us to conduct due diligence, because they know a great partnership is based upon a deeper understanding of their business. And our value creation starts with deep understanding of the business through good due diligence. We always tell them up front that we will not compromise on due diligence. To get to that point, though, we go with both formal and informal methods. The formal business meetings will get the core message across, but you need to balance that with informal gatherings. The informal meetings let you get to know each other’s personalities, habits, and let you build a common language. In Southeast Asia, it’s in the informal meetings that let the business owners come to trust you, and only then will the formal message be accepted.