Private equity practitioners in Malaysia have cautiously welcomed the arrival of new prime minister Mahathir Mohamad, amid macroeconomic headwinds and corruption concerns in relation to state fund 1Malaysia Development Berhad.
We spoke to Malaysia market watchers and found that while the election results “will not immediately have a massive impact to the industry”, the new government’s calls for transparency and social and institutional change bode well for dealmaking and fundraising.
The election result will be a catalyst for a fairer, more meritocratic and progressive country which will be good for private equity, Nicholas Bloy, founder and managing partner of Kuala Lumpur-headquartered Navis Capital told Private Equity International.
“As an investor, when you feel the rule of law is not predictable, or that particular industry dynamics can be distorted by bad actors, it puts you off,” Bloy said. Feeling you can invest without fear or favour allows you to focus on the fundamentals of an opportunity, and in the case of Malaysia, its fundamentals are attractive, he added.
“A young, growing, educated population, a competitive exporter to the rest of the world, a meaningful resource endowment, a very capable ecosystem of open capital markets and banking, legal, accounting, consulting and investing professionals – all of these are ingredients for investment confidence in the future.”
Brahmal Vasudevan, founder and chief executive of mid-market firm Creador, agreed that the Malaysian private equity industry will not see massive change in the short term, but will in the medium to long term.
Vasudevan explained Malaysia’s private equity universe is small with only a handful of active players. “Most traditional private equity investors are just not interested in the region, and they feel that historically returns and realisations in the region have not been necessarily better as what they can get in other parts of the world.”
He added: “On the positive side, clearly the change of government has lifted all the concern areas around corruption and governance. When we have been out fundraising, issues about government and corruption were raised – that cloud has definitely lifted.”
In terms of dealflow, Brian Chia, head of the corporate, commercial and securities practice at Malaysian law firm Wong & Partners, noted that Mahathir’s calls for transparency will benefit the industry.
“We are confident and optimistic that this government will be business-friendly. This in turn augurs well for dealflow and certainty. While it is too early to tell whether there will be any tangible impact on the industry, we have no doubt that the more detailed investment policies will become a lot clearer in a short while from now.”
Private equity and venture-backed investments in 2017 totalled 417.8 million Malaysian ringgit ($105 million; €90 million), lower than the 569.5 million ringgit recorded in 2016, according to the Securities Commission Malaysia 2017 annual report. Meanwhile, the total committed funds in the industry as at end-2017 reached 7 billion ringgit, slightly higher than the previous year’s 6.5 billion.
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