Breaking ground in emerging Asia

CDC Group, the UK taxpayer-owned development finance institution, has been a significant LP in Asia and other emerging markets for a number of years. First established in 1948, the group has acted as something of a pioneer in the region, providing capital to Asia’s less developed markets, which more commercially-focused funds tend to avoid.

This year, for example, the group committed $10 million in capital to the first private equity fund to strictly focus on deal opportunities in Bangladesh. The fund, which closed on $88 million earlier this year, will be managed by a team of five seasoned Bangladeshi businessmen in their first foray into private equity. The fund will target a number of sectors, including telecoms, consumer spending and textiles.

CDC divides its Asia portfolio into three separate components. The first component is its South Asia fund managers pool, which holds approximately $1.1 billion in capital, and currently directs 92 percent of its commitments to various regions across India. The second component, China fund managers, holds roughly $525 million in capital. The group’s last investment in the country was made in late 2008. As part of a new investment policy implemented in 2008 (see “Sharper  Focus”), CDC will aim to fully divest its China holdings in the next 10 to 12 years. The group’s third component, Southeast Asia / Pan Asia fund managers, holds approximately $420 million and invests in countries including Indonesia, and Vietnam.

CDC expects its Asian portfolio, which currently includes roughly $2 billion of commitments, to generate between 15 and 20 percent in returns, in line with the long term track record for global private equity, says Anubha Shrivastava, managing director for CDC’s Asia portfolio, in an interview with PEI.

Shrivastava explains the huge flow of capital into places like India and China in recent years has resulted in a boom of managers eager to capitalise on the wave of LP appetite for these high growth markets.

“In India as early as 2004, I could have counted the amount of managers on the ground, even being able to recite their names. Today, I’d estimate India alone has over 500 fund managers”, says Shrivastava.

While there are is a plethora of new managers, their limited track record has meant LPs are having a difficult time knowing who to commit capital to, Shrivastava explains, which means development finance groups like CDC are an important resource for giving virgin fund managers a chance to prove themselves.

“We’ve seen good performance from these first time fund managers”, she explains, adding that identifying a good novice GP simply meant spending more time researching a manager’s pitch, its strategy and what the market would demand of them.