The consumer play in Indonesia is the most attractive to private equity despite resource-related investments having generated the best returns for investors in the past, according to Veronica Lukito, chief executive of Indonesia-focused Ancora Capital Management.
Lukito, who says Ancora now has a consumer sector specialist, explained that GPs in Indonesia can use the lessons learned in China during its last phase of growth to track consumption patterns in a fast-growing Asian market.
“The lessons people learned in China and India is that these are highly fragmented markets with interesting and often local brands,” added Alex Wilmerding, principal at Pantheon Ventures in Hong Kong. “The opportunity as I see it is working with typically smaller, family-owned assets, which may have over-the-counter brands or baby-related products – or other segments of growth.”
Ancora’s Lukito also noted that the Indonesian market, which has historically been controlled by a small number of family conglomerates, is opening up to other investors as these family groups begin to diversify abroad and invest across Asia or even into developing markets such as Africa.
The panel, which was speaking at Private Equity International’s Asia Forum in Hong Kong, also voiced concern that Indonesia lacked a high number of good quality GPs – naming only a handful of experienced local players. Pantheon’s Wilmerding said while Indonesia offers great opportunities, the challenge is finding enough managers that can turn investments into strong returns.
Even first-time managers are hard to come by despite the widespread perceived interest in Indonesia, David Nieuwendijk, senior investment officer at Netherlands-based development bank FMO said. FMO can gauge the number of first-time funds by the inquiries it receives. “There is not a large number of first-time funds [in Indonesia], but those that are there always [seek out FMO for capital].”
FMO is keen to back first-time funds because its mandate is to support newcomers. Often the debut GPs are hard driving and passionate because they are under tremendous pressure to prove themselves. “First timers are [often] better than established funds.”
The panel compared the ‘rush’ into Indonesia with India, saying there are many fewer GPs entering the market. Lukito explained LPs are more cautious, having been burnt by an over-allocation to capital in India. She said $24 billion was invested into India during 2006-08, of which little has been returned. Therefore investors are more wary of committing large amounts of capital to country-focused funds in a “relatively nascent” market.