IFC pushes deeper into Southeast Asian private equity

The development finance institution has developed a greater appetite for Thailand, Vietnam, Indonesia, Cambodia and the Philippines, global senior portfolio manager Carlos Mayorga tells PEI.

The International Finance Corporation is strengthening its foray into Southeast Asian private equity, Private Equity International has learned.

The Washington DC-headquartered development finance institution has committed about $7 billion to private equity globally, of which about $900 million went to Southeast Asia and $550 million to China, global senior portfolio manager Carlos Mayorga told PEI. More than half of the IFC’s Southeast Asia commitments were made in the past five years, versus only 15 percent of its China commitments.

Carlos Mayorga IFC
Mayorga: I get nervous when everybody’s chasing unicorns

The IFC has developed a greater appetite for Thailand, Vietnam, Indonesia, Cambodia and the Philippines, Mayorga said, noting that it makes about five commitments in East Asia each year.

“While China remains a relevant part of our portfolio, I would say it’s just not as much of a focus as the more frontier markets, where we really feel we can drive more development impact in support of what’s happening in the industry,” he added. “Some of those countries don’t have as deep ecosystems as Malaysia or Singapore, where we’re actually more limited on how much we can invest because they’re much more developed.”

The IFC’s recent fund commitments in the region include $25 million to Exacta Asia Investment III, $20 million to Vertex SEA Fund V and $10 million to Wavemaker SEA Fund IV, according to PEI data.

Southeast Asia has attracted significant attention from private equity in recent years, driven in large part by Indonesia and Vietnam. Investment in the region climbed 143 percent to $25 billion in 2021, marking a 129 percent jump from the preceding five-year average, according to Bain & Co. Most deals have been in growth equity, with an internet and tech bent.

“Right now, if you ask me the main countries we’re looking at: we are very active in Indonesia; Thailand has a handful of funds that we invest in, mostly in the last five years, so it should have slower growth in the next couple of years from our own investing; and Vietnam, the Philippines and Cambodia are of interest and partially covered through our regional funds versus country-specific fund investments,” Mayorga said. “Most of our managers are doing… significant minority [investments] with some ability to influence or even control.”

Twenty-five unicorns were created in Southeast Asia during 2021 – more than during the preceding seven years combined – including ride-hailing giant Grab, according to DealStreetAsia. Exit activity dipped 9 percent last year, however, to $8 billion, per Bain & Co.

“I would say in Southeast Asia, versus other markets, we do see fund managers having more abilities to exit different ways, whether it’s through strategics or through the markets,” Mayorga said. “But I think what I get nervous about is when everybody’s just chasing building a unicorn as an IPO exit strategy, because that can’t be the exit path for most private equity deals. Strategic exits, selling back to sponsors in certain cases, and IPOs are all part of the equation, and so you can rely on one versus the other if things don’t pan out.”

Thailand is an increasingly popular destination for private equity capital. Last year, Bangkok-headquartered Lakeshore Capital closed its second Thailand-focused private equity fund on its $150 million hard-cap, PEI reported at the time. Fund II was more than twice the size of its $60.7 million 2014-vintage predecessor, according to PEI data.

Unlike some of its neighbouring markets in Southeast Asia – Laos, Cambodia and Myanmar, for example – Thailand does not typically qualify for development finance institution capital due to its higher GDP. The IFC was one of the only DFIs to back Lakeshore’s sophomore fund.

“Given that we’re involved in the entire emerging market set that we define, we tend to have more demand than we can actually invest in and have been selective in every region with what we can do,” Mayorga said. “So we feel good that we are selective, but we can have decent penetration in the markets that we operate in. We do look a little deeper [at] how we can support first-time fund managers and less developed frontier markets, and we’re carefully building that portfolio as well.”