Asia-focused fund managers often fail to have Southeast Asia on their investment opportunity radar.
This is perhaps not entirely surprising, considering that Southeast Asia is essentially an amalgamation of various markets at different stages of development. It is comprised of various economies with different regulatory frameworks that offer dissimilar opportunity sets. As one fund of funds manager told sister publication PEI Asia recently, “It’s just easier to invest in China or India.”
However, the region is home to more than 580 million people, and most with rising incomes. Brigit van Dijk – Van de Reijt, a partner at Aureos, which is targeting commitments of $250 million for its second Southeast Asia fund, said the region's large, young population means consumer businesses are ripe for investment. The services sector, in which growth has been faster than overall GDP growth in the region, also provides ample investment targets. She said there are also opportunities arising from stimulus packages in the region and in manufacturing, which serves both domestic and export markets.
The export potential for local businesses emanating from the growth of China and India is often underestimated as well. The express growth of its northern and western neighbours actually serves Southeast Asian companies well, as opposed to undermining their prospects. The reality is it is far from “a zero-sum game”, Pote Videt, a Bangkok-based managing director at Lombard Investments, a Southeast Asia-focused firm, recently told sister magazine PEI Asia. This is because the continued growth of these economies implies a steady demand for raw materials from and products manufactured in Southeast Asia.
Furthermore, the region is blessed with natural resources. A deal earlier this month is a good example of private equity potentital – Northstar Pacific Partners, an Indonesia-focused private equity firm affiliated with TPG, acquired a 40 percent stake in Indonesian company Delta Dunia Makmur in a deal estimated to be worth between $350 million and $400 million. Delta Dunia owns one of Indonesia's largest coal mining contractors, Bukit Makmur Mandiri Utama (BUMA).
Although Southeast Asia has not drawn the same levels of interest from limited partners as other parts of Asia have, there are a few local managers who are investing small sums in the region, including Kuala Lumpur-headquartered Navis Capital and Lombard which invest across the region. Quvat Management, Saratoga Capital and Northstar invest in Indonesia, while Leopard Capital focuses on Cambodia and firms such as VinaCapital and Mekong Capital target Vietnam.
Another timely endorsement of the region’s prospects was Affinity Equity Partners’ hire of veteran banker Inghie Kwik from Morgan Stanley to head its push into the Indonesian market in September this year. Affinity has traditionally been focused on investments in developed Asian economies and Australia, and its opening of an office in Jakarta is an indication of the opportunities available in the country.
Other firms could follow suit soon.