THE ANNUAL REVIEW 2010 - PEI Media

private equity annual review 2010 pa g e 109
MAY
The Mongolian opportunity
“Although interest in Mongolia, which is rich in largely untapped
resources including coal, gold, copper and iron ore, is coming
from investors and mining companies around the world, the success
of their investments there may depend to a large extent on
the appetite of one Asian country: its resource-hungry neighbour
China. Since the two countries signed a ‘Treaty on Friendship
and Cooperation’ in 1994, China has become Mongolia’s largest
trading partner and biggest importer of natural resources.
China is, of course, a significant trading partner to other natural
resource-rich regions and countries, such as Australia, Brazil
and South Africa. However, the advantage Mongolia has lies in
sharing a land border with China.”
JUNE
The rise of the Asian secondary buyout
“Secondary buyouts are an attractive exit route, especially in a
market like Australia where recent private equity-backed IPOs have
performed poorly. However, while secondary buyouts offer GPs
a relatively straightforward way to both deploy capital and return
cash, such deals can make LPs wary. ‘For the LP, there’s always the
concern that when a GP raises a large fund, it’s under pressure to
invest money and will pay a high price,’ said one Singapore-based
LP. ‘In general, it’s not usually been a good experience when one
buyout fund is buying from another. The sellers – being private
equity investors – always try to extract the best price, so it’s not
easy to buy from them.’”
JULY/AUGUST
On the departure of TPG’s China boss
“Weijian Shan is the latest in the long line of big-name Chinese
finance professionals to strike out alone and launch private
equity funds. Notable precedents include former Goldman
Sachs China head Fang Fenglei, who launched his own firm
Hopu Investment Management in 2007; and, most recently,
Fred Hu, former Greater China chairman at Goldman Sachs,
who retired this April amid a flurry of media reports that he
was also setting up his own fund. Shan’s departure served to
highlight once again the tendency of private equity firms in
China, whether domestic or foreign, to build their businesses
on the shoulders of one very prominent local business or finance
professional. Though private equity firms worldwide hang their
reputation on their key men, the Chinese key man (singular)
phenomenon has been exaggerated to the extreme in a country
where it’s almost impossible to do business without the right
name to get you through the door.”
SEPTEMBER
Australian fundraising woes
“Clearly, Australia is still a good place to invest money – the economy
is growing and, while it may only be 2 percent of the world’s GDP,
it is considerably more than 2 percent of the world’s investable
universe. However, in the post-downturn environment it will be
a case of survival of the fittest – and, based on portfolio performances
coming out of the recent downturn, most insiders are
pretty clear on which firms make the cut. ‘If there were a dozen
managers, then there are six who have jostled themselves into a
go-forward position. Then there are the six who are not credible
competitors to good firms anymore,’ commented a fund of funds
manager. As Darwinism slowly sets in, and LPs vote with their
feet, the landscape of Australia’s domestic private equity market
will evolve dramatically.”
OCTOBER
Chinese insurers get the green light for private equity
“Though unsurprisingly the measure comes with a fair amount of
small print, the news is nothing but good for China’s GPs and
LPs alike. For domestic fund managers, the most obvious plus is
the creation of yet another rich vein of capital to potentially tap
into on the fundraising trail. According to China-focused private
equity research body Zero2IPO, the new rules mean as much as
RMB226 billion (€26.2 billion; $33.2 billion) would be allowed to
enter China’s private equity market, given total Chinese insurance
industry assets stood at RMB4.52 trillion at the end of June this year.
But perhaps more significant than the capital itself, is the change
the CIRC measure could bring about in the make-up of China’s
domestic LP base, which until now has largely consisted of high
net worth individuals (HNWIs) and government-related bodies.”
NOVEMBER
India struggles to define its market
“China, as the indisputable king of the BRIC markets, is big and
self-sufficient enough in terms of funding to afford the luxury
of being able to ignore its emerging market peers. However,
many Indian GPs (and there are many – up to 400 according
to most estimates), rely on a largely foreign LP base, and
therefore feel a keen sense of competition with China – and
increasingly Brazil – in what is still a constrained fundraising
environment. Perhaps because of this need to compete, much
of the content of the Private Equity International India Forum
in Mumbai sought to define the specific characteristics of the
Indian market and bring uniquely Indian interpretations to
familiar private equity terms.”
DECEMBER/ JANUARY
The relative merits of MENA
“In MENA, meanwhile, oversupply of capital is hardly the problem.
There are many reasons why so many investors shun it. According
to a PEI white paper, most LPs see managers with questionable
track records, a blinding lack of transparency, poor governance
practices and scary politics. Ignorance also plays a part, if you
believe those who know the region well. Take Saudi Arabia, for
example. With a young and growing population of 27 million,
the country has a large, diversified economy and a government
that has worked hard to attract foreign investment.” n