Time to take charge

Comments made by a fund manager in November at an Asian venture capital forum held in Hong Kong accused regional players of being of uneven quality and possessing a fragmented approach to handling investors' money. The region's industry associations have since been working to create an Asia-Pacific alliance to tackle standards and bring them closer to those practiced in the US and Europe.

A memorandum of understanding was signed in December by industry associations in Hong Kong, Singapore, South Korea, Malaysia, Indonesia and Australia who agreed to cooperate on issues affecting the development of the industry in Asia.

Mark Staal of ABN Amro, the outgoing chairman of the Hong Kong Venture Capital Association, says the alliance, likely to be called the Asia-Pacific Venture Capital Association, is in the process of establishing a steering committee to prioritise issues. One or two representatives from each national group will be invited to sit on the committee. ?Larger regional firms in particular are keen to develop standards to measure performance. We need to know more about ourselves,? he says.

The committee will concentrate on promoting disclosure, performance standards, education and examine the role of individual governments.

Asian private equity managers tend to be secretive about the returns they generate, more so than their counterparts in the US and Europe. But more disclosure is viewed by many as an inevitable development.

?The big players are used to it because they operate in several financial centers. Those who focus on Asia or are based there usually like to play their cards close to their chests,? according to the Hong Kong-based director of a European investment house. ?They will need some coaxing and there will be safety in numbers I suppose if they disclose their performance in keeping with an association's requirements.?

John Mytton, investment director for Global Asset Management in Asia, believes that any move such as the establishment of a regional association seeking to improve standards is a good thing but there will be problems trying to increase transparency. ?The nature of the industry is such that people tend to protect their own interests. This leads to secretiveness,? he says.

Mytton also points out that many private equity deals in Asia involve family-owned companies that tend to be opaque operations in their own right. ?People have criticised what goes on in Asia with good reason although there has been an improvement in standards of corporate governance since the Asian crisis struck in 1998. There is however a need for professional management in many of the family-dominated companies and private equity investors might be able to encourage that.?

Readily available information about performance will help remove some of the mystery surrounding investment in this region. Many investors struggle with the risk factor in Asia and until there is greater frankness, this will be difficult to overcome.

Staal, who is on his way back to ABN Amro's head office in Amsterdam, says there is no doubt that the industry is in better shape than it was a few years ago despite a couple of savage boom bust cycles.

Even so, Staal's employer ABN Amro has taken the view that it wasn't worth sticking around for the benefits that these improvements are likely to yield. In the fourth quarter last year the Dutch bank decided to wind back its private equity operations in Asia in favour of a European allocation strategy. The bank will manage its existing US$250m portfolio here but will make no new investments.

Staal nevertheless believes the new association has an important job to do. ?Asia has got to the stage that Europe was at about 10 years ago and where America was around 20 years ago. It has a long way to go but by pooling our industry knowledge and resources I think we can move forward faster,? he says.