Friday Letter: Four paths to Asia

Everyone in Western private equity now appears to agree that an “Asian strategy” is indispensable to future growth. What is not yet clear, even after two decades of Western private equity presence in Asia, is which path to Asia is best. Let’s review the contenders.  

Path 1: Double happiness. This month, Thomas H. Lee Partners, a US firm founded by a man who has in the past claimed to have a hard time understanding the British, let alone other foreigners, announced its move to Asia through an alliance with a long-time local private equity player, H&Q Asia Pacific, led by Asia venture capital veteran Dr. Ta-lin Hsu. The thinking here seems to be for the Boston behemoth to see opportunities through the established network of H&Q in exchange for the latter’s ability to tap buyout expertise, as well as THL’s huge pool of money. A joint venture like this puts a firm into Asia, but protects its brand in case things don’t work out. Other example: Newbridge/Texas Pacific. Potential downside: Nasty divorce.

Path 2: Brand in translation. This is a classic – a private equity firm opens an office in one or more Asian cities and places in charge either a big-name local or a trusted pro from the home office. This month KKR, which faced naysayers in Europe when it set up shop in London in the late 1990s, announced plans to open offices in Hong Kong and Tokyo. Leading the Eastern charge is Joseph Bae, a New Jersey native of Korean ethnicity who helped KKR open doors for portfolio company Primedia in China. Other examples: Blackstone, 3i, Carlyle. Potential downside: You build the franchise but the deals don’t come. Or you build it and only really bad deals come.

Path 3: In through the outsource. Some firms see Asia purely as a resource to help their Western businesses perform better. Take for example The Jordan Company, a New York-based middle-market buyout firm that owns 1 million square feet of manufacturing space in China and has nearly 90 engineers on its payroll who move portfolio company production across the Pacific. In an interview last year with our sister publication Private Equity International, founder Jay Jordan said: “We can effectively move something from Akron, Ohio to Guangdong province within 60 days, open and shut.” Other examples: Blue Point Capital. Potential downside: Political backlash; Asian subsidiary becomes a competitor.

Path 4: Filial piety. Some private equity firms have found investment success by dint of being part of a global organisation that is already in Asia. Insurer AIG, for example, has offices across the region involved in selling insurance. The company’s private equity affiliate, AIG Global Investment Group, has grown in part through cross-fertilisation with more established business lines and offices in Asia. Other examples: JP Morgan Partners, HSBC Private Equity. Potential downside: Filicide.

If you’re a managing partner in Europe or the US and currently pondering the great leap to Asia, one of the above ways of doing it might be right for you. Whichever you choose, the all-important thing appears to be this: make sure you get there.