Intermediate Capital Group (ICG), the quoted mezzanine provider and specialist asset management house, is in the process of raising a mezzanine fund that will service the buyout markets in Japan, South Korea, Australia and Hong Kong. It is the first effort undertaken by a European mezzanine house to expand into the Far East.
According to Tom Attwood, a management director of ICG, the decision to open for business in the Far East was taken after a process of comparative analysis to select the region that held out the most attractive prospects for the firm.
“Asia has a more recognisable, long-embedded credit culture than other emerging markets”, Attwood said. “There are big economies with big companies which have divisions that can be sold. There is now a more broadly based M&A community, and a number of private equity houses that we know well such as Carlyle, CVC Capital Partners and Prudential are already there. There is a great opportunity in this market, which reminds me of the state of the UK market in the early 1990s.”
Attwood, who himself is closely involved in the project, acknowledged that the strategy was not without risk. “The returns from Asian private equity up to 1997 have been dreadful, but this is changing. Back then people were mostly investing in development capital, whereas now it is about buyouts of businesses with proven track records, so it would be unfair to use performance history as an indicator.”
ICG, which has a strong pan-European franchise, decided against a move into the US because it felt that it would have been more difficult to add value in what is already a well-established mezzanine market. Attwood also said the firm had looked at Central and Eastern Europe but concluded that its economies were too small compared to Asia and lent themselves more to equity investing as opposed to mezzanine.
The firm dispatched two senior executives, Christophe Evain and Piers Millar, to Hong Kong in September 2001 to set up the operation. A team of local professionals has been hired since, and ICG is currently in talks with a number of local financial institutions about joining the project as cornerstone investors.
ICG is looking to raise up to $150m from both local and international investors and will use its own balance sheet to invest alongside the fund.
In Europe, the firm is currently investing the mezzanine fund which it raised in 2000. Some 60 per cent of the fund has been invested, and ICG is planning to start raising a new European vehicle in about nine months time.
Earlier this week, ICG announced the closing of Promus II, a E340m CDO fund that will invest in leveraged loans, mezzanine and high yield debt.