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September 2009 Issue
In Brief

Buyouts’ Past Exit Mode consummated through a one-time transaction is becoming increasingly difficult. Investors are devising various avenues to access cash Feature
Clean Tech Fund Pool takes shape as environmental awareness grows, with China being the prime driving force. Second part of the Green Agenda report Special Report
Oz Wins Institutional Capital despite its relatively small economy, elevating its status as one of the most attractive investment hubs in Asia Institutional Investors - Analysis
Indochina Vietnam’s Liquidation is the first most telling revelation of the assertive position taken by a party of limited partners Institutional Investors - Funds
Two of the Largest Buyouts in Japan encounter different outcomes that leave observers fathoming for answers General Section - Analysis
A Corporate Investor in Japan concludes its venture in direct investment after enjoying a decade of high profile General Section – Funds
Senior Management Movements in India testifies to a positive chapter in the evolution of the country’s private equity fund management sector India Corner - Analysis
Industry Specific Investment Trend in India underscores investors’ caution in deploying capital, at the advent of economic recovery India Corner - Investments
Adani’s Debut Signals Confidence has returned to India even though there has been no upsurge of its share price India Corner - Divestments
Content

Special Report

Institutional Corner
News
Analysis
Small is Beautiful
Funds

General Section
News
Analysis
Funds

India Corner
News
Analysis
The Aspiring Minds
Investments
Divestments

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

Exit Origination

I t has to be an annus horribilis for buyout investors. For the first time since 2000 when buyout concept began to anchor in the Asian private equity market, its disciples have endured a year with little to rejoice about. The infrastructure that had helped propel buyouts to become the mainstay in Asian private equity crumbled under the onslaught of the global financial crisis. Since 2007, over US$38.8 billion in buyout capital has been raised, yet investment activities have been stalled in the face of a deficit of leverage financing. Since October last year, following the fall of Lehman Brothers, US$7.3 billion in buyout transaction aggregate has been recorded for these 11 months. During the same period, only US$310 million is known to have returned to buyout investors’ coffers. “Troubled portfolios” has been the common theme of buyout fund managers’ reports to their limited partners. Against such an unprecedented hostile environment, general partners of these funds are employing an array of strategies to achieve or pave a path to liquidity, as they strive to return capital to their limited partners.

Piecemeal Sales

After having been a controlling shareholder of Pokka Corp. (‘Pokka’) for four years, a wholesale food and beverage company headquartered in Japan, Advantage Partners LLP and CITIC Capital Partners (‘Advantage and CITIC’) have only been able to sell a third of their holdings in Pokka. Earlier in August, Japan’s Sapporo Holdings Ltd (‘Sapporo’), one of the leading brewery companies in the country, took a 21.65% stake in Pokka Corp. through purchase of shares held by both Advantage and CITIC. Following completion of this transaction, Advantage and CITIC, which had previously held a combined 66.7% stake in Pokka, will continue to hold 45.05%. ....

Institutional Corner - Analysis

Small is Beautiful

Australia attracts global institutional capital

On the totem pole of global developed economies, Australia is undoubtedly far at the bottom, compared to Japan, which continues to rank as the second largest economy in the world. Ironically, institutional capital seems to prefer Australia’s relatively smaller economy to Japan. At the end of August, there were reports that suggested China Investment Corporation (‘CIC’) was about to direct some US$1 billion into the convertible bonds of Fortescue Metals Group Ltd.. No other market in Asia has registered such a keen level of interest from global institutions.

Australia has an unblemished record in sustaining foreign institutional investor interest. Before the onslaught of the global financial crisis, both Temasek Holdings and GIC Special Investments had been active investors, making allocations to a host of domestic buyout funds including those managed by CHAMP Venture Pty Ltd. and Ironbridge Capital. Despite the fall of a number of acclaimed investment firms such as Babcock and Brown Ltd. and Allco Equity Group, global institutional capital continued to flow Down Under.

Since the beginning of year, in addition to CIC, Australia’s private equity market boasted two additional new names: Oman Investment Fund, the sovereign wealth fund of Oman, and the Canada public pension fund CPP Investment Board. Oman Investment Fund has formed an alliance with Becton Property Group Ltd. and invested in a Retirement Village for US$20.3 million. After more than a half year of pursuit, CPP Investment Board assumed full control of Macquarie Communications Infrastructure Group for A$2.2 billion (US$1.7 billion). It remains the single largest commitment by one institutional group for an Asian operation.

In addition to eying Australia’s commodities, CIC is establishing itself as a staunch backer of Goodman Group, a property development company. After having provided an A$200 million facility for Goodman Group to boost its liquidity, China’s sovereign wealth fund is preparing to deploy an additional A$500 million in the property developer.

Home to one of the most sophisticated pension fund systems, Australia’s professional capital management expertise is being courted by other emerging institutions in Asia. Korea Investment Corporation (‘KIC’), South Korea’s sovereign wealth fund, recently announced its partnership with QIC. The A$65 billion Queensland government-owned investment vehicle will scout for investment opportunities across the globe with KIC.

Despite its geographic distance and relatively smaller economy, Australia is endowed with rich resources, including skilled managers and prized assets. These, together with a developed legal framework and a mature market economy, are all the factors that have helped to draw institutional capital. It is little wonder that Australia is among the most sought-after investment destinations of global institutions.

India Corner - Analysis

The Aspiring Minds

India PE witnesses vibrant management turnover movement

The life-long loyalty with an employing institution seems an outdated tradition in the Indian private equity industry. In early August, it became known that Mr Subbu Subramaniam, a founding partner of Baring Private Equity Partners (India) Ltd., has left the firm after more than a decade of partnership with Mr Rahul Bhasin. In early September, it became known that there were more senior management departures in ICICI Venture Funds Management (‘ICICI Venture). India’s senior managers are making a statement in their search of their own greener pastures.

Mid last year, Mr Ajay Relan, former head of private equity of Citigroup Venture Capital International, one of the most experienced private equity professionals in India, left the institution where he had been responsible for building up its direct equity investment portfolio. His resignation shed light on a growing pool of managers who are ready to seek an independent status, a factor regarded critical to a successful fund management firm.

Less than a year after Mr Relan left his former institution, the abrupt resignation of Ms Renuka Ramnath, managing director and chief executive officer of ICICI Venture, took the industry by surprise. Prior to being transferred to ICICI Venture, Ms Ramnath had been working in the parent company, ICICI Bank, for 10 years. Since taking over ICICI Venture in the early part of this decade, Ms Ramnath had been instrumental in revamping India’s oldest venture capital firm. Her decision to set up her own fund management firm, Multiples Alternate Asset Management, testified to aspiring fund managers’ readiness to leave behind the institutional cushion in order to seek their own path of development.

Since the beginning of 2008, India’s private equity community has registered active senior management turnover activity, with 42 senior management movements. Over 83% of these involved the most senior level of managers, namely those at the managing partner or chief executive level. As an indicator of the level of mobility in the fund management stratum, on average such senior managers make their move to a new employing organisation after having been with a firm for an average 7.7 years.

In this latest management mobility trend in India, the comforting factor is that private equity has proven its ability to retain talent. Of the 42 senior management movements recorded, over 81% have joined another private equity firm, while only 5% chose to hang up their own shingle. Mr Relan now heads up his own private equity firm, CX Partners, while two managers in Baring Private Equity India have left to join Mr Subramaniam to form a new partnership.

In the evolution of an industry, the movement of senior managers is part of a necessary process for growth. It is a pain that will one day render gain.