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March 2008 Issue
In Brief

Seeking for Change is the Prime factor behind management turnover in recent years, a trend that differs from the past Feature
Institutions Build Franchises in Asia that target an array of opportunities emerging in the region Analysis
PE-backed Stocks Stand Tall despite prevailing market volatility Focus
Corporate Venturers are the Backbone to China’s burgeoning venture capital industry Institutional Investors
Mixed Aussie Deal Clinching Record as some buyout investors win while others lose target companies Buyouts
Malaysia Beckons Private Equity as investors log in sealed deals there Growth/Expansion
Closing of 2nd Billion China Fund testifies to opportunities in companies with large market values Greater China - Funds
Lenovo Mobile Entrusted to PE as Lenovo focuses on its core business Greater China - Investments
Sequoia China’s 1st Buyout Deal evidences lessening demarcation between buyout and non-buyout players in the China market Greater China - Buyouts
Savvy PE Investors Park Capital in Indian infrastructure as the country’s future growth hinges on improvement of its infrastructure India Corner - Growth/Expansion
Merger of Two Banks is Set to post an envious exit for its investors India Corner – Divestments
A Japanese Glass Co.’s Assets would enhance its suitors’ position in China’s LCD market Japan Corner – Buyouts
Content

Analysis
Focus
Institutional Corner
The Corporate Venturers

Pan Asia
News
Funds
Growth/Expansion

Greater China
News
Banks to Close the Taiwan Strait
Funds
Investments
Buyouts
Divestments

India Corner
News
Funds
Investments
Divestments

Japan Corner
News
Funds
Buyouts

Subscriber Weekly Summary
People on the Move
Summary
Index & Exchange Rates

In Search of Change

The war for professional talent is raging across Asia’s financial industry. Weeks after it came into operation in November last year, China Investment Corp., the country’s first sovereign wealth fund, embarked on a global talent recruitment campaign to lure aspiring fund managers to join the world’s newest sovereign wealth fund operation. More recently, JPMorgan Chase announced its return to Asian private equity. Instead of recruiting its new team, the financial institution has decided to become the new master of the previous management team of the Hong Kong-based TVG Capital Partners. The two senior managers of the latter have an aggregate 30 years of investment experience in Asian private equity. At the same time, Franklin Templeton Investments is revisiting Vietnam’s private equity market, and unveiled its partnership with Vietcombank, that has an established private equity investment team with US$133.3 million under management. The series of announcements by these financial institutions are a stark indication of the acute shortage of fund managers facing the region’s financial landscape industry. Ironically, like a double-edged sword, while economic prosperity has propelled Asian private equity into the forefront in asset management, at the same time it has ushered in a new set of parameters that has redefined the human resources landscape in this industry. The brand name, security and associated benefits offered by an institution, or even in cases where carried interest is integral to a remuneration package, are no longer the essential factors that would help to anchor senior management in tenure. The Adieu Management turnover, at the senior level in Asian private equity, has long been one of the most disturbing issues to limited partners. This was evident, especially during the bleak years when meagre returns on invested capital, if any, were the norm. But even in the good years, there has been no respite from senior managers inking their resignation letters. Different from the past, however, a new pool of managers is fuelling the management turnover momentum. They are those in the limited partners’ category...

Institutional Corner

The Corporate Venturers

Two corporate venturers dominate China’s vibrant VC industry

China’s vibrant venture capital industry has come a long way from the days when its first management firm, China Venturetech Investment Corp., was formed back in 1985. It had since become defunct. Two of the names that have come to symbolise the growth and success of China’s venture capital industry, ironically, are not independent domestic fund management firms, but instead, they are the corporate investment arms of the US-based International Data Group (‘IDG’) and the domestic Legend Holdings. For the past decade, these two corporations, one foreign and the other local, have propelled venture capital in China to the same level as has boasted by Silicon Valley.

International Data Group

IDG was the pioneer. It first established its China venture fund in 1993 with a modest fund pool of US$10 million. After more than 15 years of arduous effort through its corporate venture investment arm, IDG Technology Venture Investment (‘IDG Technology’), IDG currently boasts a China venture fund pool of over US$1.6 billion. It has invested in more than 200 companies with 60 already divested, according to a report by 21st Century Business Herald.

IDG has been pragmatic in shaping the growth and development of its corporate venture arm. In recent years, IDG Technology has not only broadened its fund management mandate, but also its investment focus. In 2005, it became the first foreign corporate venture investment firm in China to join forces with another foreign party to launch a venture capital fund for China. Its partner is Silicon Valley’s Accel Partners. Together they have established two funds, the US$290 million IDG-Accel China Growth Fund and the US$510 million IDG-Accel China Growth Fund II.

With a substantially larger fund pool, IDG Technology is no longer confining its focus to the early stage space. During the past 18 months, it has been venturing into companies that are in growth/expansion stages, such as its US$85 million in Hangting Hotels Inc. and US$40 million in 139shop.com.

In a recent interview with 21st Century Business Herald, Mr Patrick McGovern, chairman of IDG, revealed the ambitious plans that the publisher of “Computer World” is planning for China. It aims to have over US$60 billion in assets under management by 2020. There are compelling reasons for IDG to be optimistic about its future in China. In recent years, IDG Technology has been enjoying the harvest of its toil in China. In 2007, it exited from Allyes Information Technology and booked a return of eight times on an investment amount of US$14 million. One of its most legendary investments is about to be unveiled. When IDG Technology exits from Sofun Holdings, according to sources, the venture investment arm of IDG is estimated to record a staggering 50 times return on its original invested capital.

Legend Holdings

Among China’s state-owned enterprises, Legend Holdings can be lauded as one of the staunchest corporate venture investors. It commenced its journey with venture investing in 2001 when it launched Legend Capital, its corporate venture arm. At that time, LC Fund I, which was fully subscribed by Legend Holdings, had a modest capital pool of US$35 million. Today, Legend Capital is raising its fourth fund with a target size of US$400 million, more than 10 times in size compared to the fund management firm’s first fund.

Similar to IDG, Legend Holdings has been weaning off its influence over its corporate investment arm, so as to allow Legend Capital a degree of autonomy and independence. According to Mr Zhu LiNan, chief executive and managing director of Legend Capital, by the time that LC Fund III was established, Legend Holdings accounted for only 50% of LC Fund III’s US$170 million capital pool, with the remaining coming from third party investors. In the forthcoming LC Fund IV, Legend Holdings is not expected to subscribe more than 50% of its capital pool.

During the past seven years, Legend Capital has been developing its expertise. With each fund, the investment focus has broadened. While LC Fund I was solely focused on the information technology area, LC Fund II was broadened to seek opportunities in the non-IT segment. Like IDG Technology, Legend Capital has found it necessary to widen its investment radar to include companies that are not only in a growth phase, but also in the non-information technology area. Some of these investments included US$20 million in Shanghai New Sihe Wood Co. Ltd. and US$4.5 million in Guangdong Fengkai Machinery Manufacturing Co. Ltd.

In an interview with 21st Century Business Herald, Mr Zhu was not shy about revealing Legend Capital’s illustrious investment track record, with LC Fund I boasting an internal rate of return of over 30%. Those for its successor funds were even higher, although he fell short of disclosing the applicable returns number.

To Legend Holdings, its corporate venturing arm has been a source of pride and joy. Legend Capital has not only been able to provide seed capital to some of China’s most promising technology companies, but also been able to post outstanding returns. In 2007, Legend Capital had a few successful exits, including the partial sale of Kingsoft Corporation. The divestiture returned US$10.2 million to Legend Capital on its original US$4.5 million investment, with remaining shares valued at over US$36 million, based on the initial public offering price. Added to this are the shares disposals of VanceInfo Technologies, China Sunshine Paper Holdings and Eyang Holding (Group) Ltd.

Comments

Attracted by enticing market opportunities in China, a host of global corporations are employing their own corporate venture arms as a conduit to access the China market. Sharing a similar vision as IDG, Intel Corporation, through its Intel Capital, has established a dedicated US$200 million fund in 2007 to seek opportunities in China.

The notion of corporate venturing is beginning to take off among China’s aspiring entrepreneurs. Last year, Mr Wong Kwong-yu, chairman of the GOME Group, China’s largest electrical appliances chain retailers, has established Eagle Investment Group that seeks opportunities in China’s retail industry. It has already formed a partnership with Bear Stearns in managing a US$500 million private equity fund. Most recently, China’s Bright Food (Group) Co., Ltd., is known to have teamed up with CITIC Capital Partners to launch a fund that targets the food sector.

This surging pool of foreign and domestic corporate investors has become the backbone of China’s burgeoning venture capital industry. Their expert knowledge in technologies and operational skills are key factors that will help to advance China’s nascent venture capital industry.

Greater China Corner - News

Banks to Close the Taiwan Strait

The strip of water that separates China from Taiwan is becoming less difficult to cross, at least for those seeking to further integrate these two economies. In a landmark move, both China and Taiwan have basically agreed to allow Taiwanese banks to invest in Chinese lenders, albeit indirectly and through an overseas unit. The banks from the island would need to meet certain requirements, such as competent capital adequacy ratios, with an equity ceiling limit of 20%.

The regulatory break-through could benefit the host of private equity firms that have invested in Taiwanese lending institutions. The latter have been a favoured investment target of foreign private equity investors. Since the beginning of 2006, financial investors have collectively deployed an aggregate US$3.0 billion to six financial institutions on the island, representing 35.4% of the two years’ transaction totals.

There are reports that suggest Taiwan’s Fubon Bank has been approved to purchase a 20% stake in Xiamen Commercial Bank through its Hong Kong affiliate.