Indonesian market and PE opportunities
Indonesia has always been an exciting market and it seems the country is positioned/presents great opportunities for PE firms though there are many barriers and difficulties actually investing in the country.
For reference, I am an AD at a BB in London and have been a generalist in terms of sector and product. What are the biggest Indonesian PE firms and would it at all be possible to join one/get into this world? If yes, I assume the pay is not comparable but one of the reasons to do it would be if you’re allowed to buy in/if at all possible?
I know the regulations are tough and a company has to prove an Indonesian citizen could not do the same job, to prove they have to higher a foreigner.
I know it’s not a traditional path by any means but I feel like it would be an exciting opportunity as the market is emerging and the country is developing so quickly (opportunities which are non existent anymore in the USA or Europe, though extremely risky).
These are my two cents but would love to hear others thoughts/opinions on Indonesias potential in general and PE specifically.
I agree the potential is there, however, I believe 1) it's hard to write big checks for PE funds because there aren't many billion-dollar companies (Bain investing in Vietnam) and 2) the local guys tend to win deals. That's why mega PE shops just invest with Reliance in India because foreign companies aren't going to get anywhere.
I'm personally interested in investing ideas for SE Asia if you have any.
Yes definitely agree it is hard because of all the red tape and you need people on the ground who know how to get through/work through everything. A lot of things go super slow generally and lot’s of bureaucracy.
That said, since it is not as developed, a lot of companies don’t keep the same amount of data, creating discrepancies in the actual value of companies. Similarly, if you can do a buy and build platform for say waste management this would be very lucrative, given the growing population in cities, new build neighborhoods, and poorly managed current processes.
Would definitely be interesting to learn from anyone who is working for a PE firm in Jakarta though there aren’t many out there and tend to focus on either consumer or Natural resources.
Believe it or not, Indonesia does not have a sizable waste management industry that can be rolled up. In fact, a lot of sectors which work in North America for PE rollup strategies, either do not exist or do not have a similar size, growth trajectory, or margins in SE Asia.
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The tailwinds for having a true buyout market are there: large domestic base, rapidly growing middle class, high literacy and digital penetration, and a relatively stable political environment now. However, the massive issues for SEA buyout are still there: lack of M&A activity in general, weak capital markets, some level of corruption unfortunately still remains, and so on.
two dynamics still remain that make SEA buyout a tough nut to crack - difficulty in gaining control, and sourcing. A lot of large companies are still related to the big family conglomerates, and large companies that aren't family controlled are well covered and likely well intermediated. Most larger family run companies are also unwilling to give up control to what they perceive as an "outsider", even more so for people who aren't native and aren't well plugged into their circles. It's very hard for foreigners to be truly in the know - which is why all the megacaps are hiring native Bahasa speakers to cover Indo deals, to one day have native speaking seniors who can cover Indo effectively.
IMO I think there's an interesting opportunity for corporate carveouts - but someone local who is already super well connected and from a rich family themselves would be more likely to succeed there. Kind of like Hahn & Co. In Korea.
TLDR it's really hard to do good deals in Indonesia as a foreigner. Megacaps doing SEA deals out of Singapore used to be willing to hire guys with strong pedigree from NYC/London. It's extremely rare now that they don't hire at least someone who is native and grew up in the region. Even Singaporeans (who have better "pedigree" on average) are increasingly losing out because they have no SEA language ability. Just look at all the regional funds staffing their KL/HCM/Jakarta offices with natives only
Thank you this is extremely helpful.
As you lay out there are many challenges, which likely can only be overcome by either being an insider or in a position to challenge insiders. It definitely makes sense that indeed most hires are local and large shops are cautious. What are the largest local PE’s in the local market currently?
Do you think the reason the low deal volume is because of a lack of opportunity/difficulties executing at all or rather due to the fact that the market is in itself early stages (not many players making an effort)?
Perhaps a comparison can be made to post sovjet Russia, albeit there was more chaos there, companies essentially “existed”, there was no deals being done at all, until it slowly got going and caused a snowball effect, as many opportunities came to light for companies no one had ever heard of. Another similarity is the oligarchs vs rich families which ultimately control most of the market, if not directly then indirectly. This was at some point overcome through aligning interests (everyone making more money, until they didn’t want to share with anyone) and lots of carving out & buy and build nationally. Perhaps something similar is possible in Indonesia, which eventually will attract international investors (FDI) which the government seems to try and encourage?
Lack of quality opportunities, lots of bankers, lots of advisors, not many bankable deals with the characteristics to make a deal interesting for traditional PE style investing. Also, family groups are cashed up and are not willing to give up control, and have no catalyst to sell controlling stakes in. quality businesses.
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Once again you've covered this market excellently. The point about needing SEA language capability in particular is very true.
Can also confirm the point about corporate carve-outs, as far as the Indo market is concerned that's where my fund is looking, kinda. Having good relationships with major local players can also work to gain access.
Local offices are usually for origination and relationship mgmt only, and hence only hire locals.
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Based in the region, I can attest to a couple of things:
I still believe there are opportunities and headwinds - but it is not an easy market for sure. Can PM me if you want to know more.
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