CLOUDS AHEAD

KY Tang has had plenty to celebrate of late, and so have many of his peers in Asian private equity. However, as far as the industry's future is concerned, Tang for one is taking nothing for granted.

Affinity Equity Partners, the firm he runs as chairman and managing partner, is currently investing the $2.8 billion Affinity Asia Pacific Fund III, the largest buyout fund ever organised by an independent Asian sponsor. Late last year, Affinity concluded its successful run through 2007 by completing the exit of Himart, a Korean electronics retailer it backed in March 2005. The sale to a local strategic buyer was set to return Affinity more than two times cash.

Before cashing in on Himart, Affinity had made headlines for completing the take-private of Singapore-listed United Testing and Assembly Centre, a chip testing business, together with TPG Capital. The $1.4 billion buyout obtained the first, and some say last, covenantlite financing deal in Asia Pacific.

Despite such highlights in the recent past, Tang is cautious as to where Asian private equity is headed now. Asked to share his thoughts on what the future holds, he sent a note to our sister website www.PrivateEquityOnline.com. In it he wrote: “Public equity markets in most major Asian economies will trade at substantially lower levels at the end of 2008 than the levels they were at in September 2007. This will be reflected in the pace of deal completions and exits for private equity.”

Tang also expressed scepticism at the viability of some of the larger buyouts completed in Asia in the last 18 months: “[LBOs] that were won at auctions at high multiples, and which pushed the limits on financing leverage, will begin to exhibit cracks at their façades. They will need to be restructured.”

Regarding the investment boom in China and India, he said: “The spectacular private equity returns achieved in China and India in the last three years will not be repeated again in the next three years – they will be substantially lower. Those spectacular gains were part of a one-off event associated with the fruits of a decade of economic reforms, market deregulation and integration into the world economy.”

The “fourth investment wave” in China since economic reforms began in 1978 would come to an end, he predicted. But, he concluded, there is a silver lining: “Not to worry: there will be a fifth wave – and a sixth.”

GOLDMAN CLOSES $600M ASIA FOF
Goldman Sachs Private Equity has raised a $600 million (€416 million) fund of funds for Asian investments. The fund has already committed to “five or six managers” in the region, according to a spokesman for the firm. The new fund is Goldman's first Asia-focussed fund of funds, having previously made investments in the region from its global fund. The firm has found success with deals in the region, earning three times its money on a $500 million investment in South Korea's Kookmin Bank and a 2.5 times return on its $2.6 billion investment in the Industrial and Commercial Bank of China in 2006. But in recent months the firm has run into regulatory problems with its direct investments. China's Securities Regulatory Commission blocked two of Goldman's proposed take-privates in China: a $119 million acquisition of a 10 percent stake in Shanghai-listed Fuyao Glass Industries and a $96 million acquisition of a 10.7 percent stake in appliance maker Midea. Goldman's spokesman declined to comment on whether the new fund of funds would seek to invest with domestic or offshore fund managers.

LAZARD SETS ITS SIGHTS ON INDIA
Lazard is launching its first India-focussed private equity fund according to Business Standard, a local daily. The same source suggests the bank is aiming to raise $300 million (€204 million). K Balakrishnan, who heads Lazard's investment banking business in India, confirmed it is poised to launch a private equity fund but declined to comment on the target amount. He said the India fund would mark Lazard's first private equity fund for Asia. The bank's private equity investment activities are mostly confined to the US and Europe currently. According to Business Standard, Lazard will be an anchor investor in the fund, for which marketing is expected to begin in February. Balakrishnan, who joined Lazard in 2004 from HSBC, where he was head of corporate finance, will lead the effort.

CHINA VC DOUBLES UP WITH SECOND FUND
Northern Light Venture Capital has raised $236 million (€161 million) for its second fund, according to chief financial officer Jeff Lee. The firm came back to market just one year after closing its debut fund, and raised nearly twice as much capital. The China-focussed firm was founded in 2005 by Feng Deng and Yan Ke, two Chinese executives who earlier co-founded US tech company NetScreen Technologies. The firm raised $120 million for its debut fund in 2006. Venture firms Greylock Partners and New Enterprise Associates are limited partners in both of Northern Light's funds, and also provide advisory and operational support for the firm. Lee was unable to comment on the fundraising process or the new fund's strategy. Northern Light's portfolio includes online dating service Baihe.com, mobile social network 3GPP and online retailer Redbaby. The firm has offices in Menlo Park, Beijing and Shanghai.

ABRAAJ IN LUCRATIVE LOGOUT FROM MAKTOOB
Abraaj Capital, a private equity firm specialising in investment in the Middle East, North Africa and South Asia (MENASA) region, has sold its stake in Maktoob.com, an internet portal, to hedge fund Tiger Global Management. The sale generated an internal rate of return in excess of 75 percent. Abraaj bought a stake in 2005 using capital from its buyout fund. Founded in 2000 and headquartered in Amman, Jordan, Maktoob provides a variety of online services to millions of users, including Arabic-language auction site Souq.com; Arabic-language search engine Araby.com; Arabic matrimonial website, Bentelhalal.com; and Arabic and English web-based email and chat rooms. Maktoob.com was recently ranked as the 102nd most-visited site on the internet globally, the most visited Arabic site in the Arab world and among the top 10 most visited global sites in each of the six GCC states.

BANERJEE BACK AT ICICI
Jayanta Banerjee has rejoined ICICI Venture after six months as a managing director and head of private equity for India at Lehman Brothers. Banerjee, 41, started at Lehman on the 1 June 2007 but had maintained close ties with Renuka Ramnath, the head of ICICI Venture, who invited him to return to participate in the implementation of “huge plans for ICICI.” Banerjee said he would help to effect the “disproportionate growth” ICICI Venture has earmarked. The firm plans to grow assets under management to $10 billion from $2.5 billion in the next three years, he said. Banerjee first joined ICICI Venture in 2002. It raised a $250 million fund the following year. Banerjee will again focus on fundraising as well as the firm's expansion strategy. The seasoned fundraiser said ICICI Ventures will launch two separate India-focused vehicles in 2008: a growth and buyout fund with a target of $1.5 to $2 billion, and a real estate fund with a $2 billion target. Hard caps for both funds have not been decided.

BEAR, EAGLE HIRE ORCHID VETERAN FOR JOINT VENTURE
Bear Stearns and Chinese firm Eagle Investment Group have hired Steven Kwok to lead their joint private equity effort in China. Kwok was most recently a managing director at Orchid Asia, a $450 million (€308 million) China-focussed private equity fund, before which he was head of UBS Capital Greater China. He has also worked at The Carlyle Group in Asia and Salomon Brothers in New York. Bear Stearns and Eagle announced the alliance in April 2007. Each firm will contribute $250 million for investments in the retail and consumer sectors. Bear Stearns, through its Merchant Banking division, has acquired several US retail brands, including Aeropostale, Seven for all Mankind and Stuart Weitzman. Eagle Investment is a holding company that manages a number of investments across sectors including real estate, construction, pharmaceuticals, securities, asset management and IT. The firm owns GOME Electronics, the largest home appliance and consumer electronic goods retailer in China.

FOUNTAINVEST TAPS CANADA FOR FUNDS
Ontario Teachers Pension Plan and Canada Pension Plan are backing FountainVest, a China-focussed private equity manager formed by executives that used to work together at the Singapore government's Temasek in Hong Kong and mainland China, according to a source. The pension funds are each committing $200 million, and Temasek is understood to be committing $50 million, he said. Currently fundraising, Fountainvest has a $700 million target and a hard cap of $750 million, the source said. FountainVest is led by Frank Tang, Temasek's dealmaker in China until his resignation in September last year. At that time, Temasek had hinted it would be open to supporting the departing investment executives in their new venture. Tang resigned along with a number of senior investment professionals responsible for Temasek's China investments.

FIVE NEW RECRUITS AT CITIC
CITIC Capital Holdings, the private equity arm of China International Trust and Investment Company, an investment arm of the Chinese Government, has added to its private equity teams in China and Japan. Bo Liu will join the China team as a director and Terry Cui as a senior associate. Liu previously ran the China investment operations of US private equity firm Ewing Management Group. He becomes the sixth senior member of CITIC Capital's China team. Cui was most recently at Boston Consulting Group. Meanwhile, Hanxi Zhao will join CITIC's Japan team as a managing director, while Yueping Chen and Eriko Yamamoto will join the same team as analyst and associate, respectively. Zhao was previously director of strategy and planning at Dow Jones & Company, responsible for formulating and executing business strategy for its consumer media group. Chen was hired from Arthur D. Little, where she was a business analyst.