South-East Asian private equity markets aren’t known for an abundance of buyouts. Tower Capital Asia, a Singaporean private equity firm, is planning to bolster those numbers, albeit marginally.
The firm raised $250 million in a first close of its debut blind-pool fund targeting mid-market buyouts across the region last week, according to a statement.
Tower Capital PE Fund I has a $300 million target and a $500 million hard-cap, founder Danny Koh told Private Equity International. The fund was launched in March 2020 and expects to hold a final close by year-end.
“Honestly, this is already beyond our expectation given the backdrop of covid and a lot of uncertainties in the market,” Koh said. “If we can get to above 300 [million], that would be a big win for us as a GP.”
Koh, a former director at emerging markets specialist Actis and London’s 3i, launched Tower Capital in 2016. The firm has made four deal-by-deal investments to date, including the S$269 million ($202 million; €167 million) take-private of Chinese medicine brand Eu Yan Song in 2016 and the $276 million take-private of logistics business Poh Tiong Choon the following year, per the statement.
Tower Capital is only targeting institutional capital for its fund and has engaged Anagram Advisors, a newly launched investor relations advisory run by Hwee Ang, a former colleague of Koh’s from Actis and most recently head of IR at Monk’s Hill Ventures. About half of the LPs that committed at first close had previously invested with Tower on a deal-by-deal basis, Koh said.
While Singaporean buyouts are already something of a rarity, Fund I is also unusual in that it will target no more than seven investments, versus the 10 to 12 more typical of buyout vehicles. It will pursue acquisitions in the healthcare, education and consumer sectors, mostly in Singapore, as well as Malaysia and Indonesia.
“We are, I would say, unashamedly different from most fund structures; we don’t believe in the fully diversified fund,” Koh noted. “South-East Asia is a shallow market: the traditional model of a big fund investing in 10, 20 deals does not make sense. You will face deployment pressure and that may result in unforced error.”
Emerging Asia strategies – classified as Greater China, Indonesia, Singapore and India – can divide opinion among investors. Post-2006 vintages in the region have significantly lower average distribution ratios than their western peers due to a trickier exit environment and a predilection for minority investments, according to data from software provider eFront.
The Association of Southeast Asian Nations includes 10 countries representing an estimated 668 million people. A comparative lack of shared languages and cultural nuances, relative to somewhere like the US or Europe, can prove a challenge for private equity owners, Koh explained. “A consumer product that works in Indonesia may not work in Malaysia because of taste differences, hence brands may not travel as well,” he said.
“I always tell people if you find a GP that can operate well in all economies and you were to invest in them, that’s the day you lose money. Because there is no one who knows all the cultures and economies and family groups well.”