Q&A: Megafund Asia Private Equity

Intro: I'm heading to bschool in a few months time, and work has been ramping down for me as I prepare to hand off projects to fresh associates below me. Although this is still a US-centric forum, I think there is still a bit of interest in PE opportunities in Asia and thought why not answer a few questions on the topic if there are any. ####Bio: * Target T10 US College * 2-3 Years of NY IBD * 2 Years of Asia PE * MBA (Upcoming) H/S/W ####Q&A: As some of the previous posters on this topic mentioned, some of the Asia PE insights here are laughable. Happy to answer any questions on IBD/PE in the US vs. the Asia context, recruiting from within Asia or from London/NY, current PE landscape in Asia, and anything else that worth asking.

 
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1) This is too broad of a question to answer, but will attempt at providing some color. PE in Asia is actually quite hard to generalize, as it is a collection of multiple markets that differ quite a bit. It can be thought of more through two lenses, a) developed/mature markets (Japan/Korea, and to a lesser extent the local Singapore/HK/Taiwan markets) and b) emerging markets (China, India, and Southeast Asia). In general, the landscape is quite competitive, especially with the inflow of newly started local funds (mainly in China) along with the ever increasing attention of large cap GPs focusing efforts on capture the growth of the region with the PE market in the US/EU having heated up to its current state. I would say that for any international GP to do well here, they would need a deeply local team that understands the way the local market functions and how deals are done here. Given the name of their platform, they can leverage that to get deals done in the market with more credibility than the local funds. As a local fund, you're highly dependent on the key dealmakers (usually founders) in the firm, and their relationship/experience that they have built up over the years at institutional platforms (BB banks, other PE firms). If you're somewhere in-between without either, it would be tough to truly compete without focusing on a specific niche/sector/angle. From a deals that are done here perspective, Japan/Korea are mainly large-cap carve out markets from conglomerates, China is still focused on mostly growth with increasing number of control deals, India has been a mix of control/significant minority deals, and Southeast Asia is still mainly focused on growth with a limited number of control deals. Deal sourcing overall is still quite focused on relationships, and is far cry from the auction process-driven environment of the US and EU.

2) I prefer not to disclose too much, but will say I have experience in the SEA/HK market.

3) Comp for MF PE here is on par with many UMM funds in the US. Junior associates usually make anywhere from 220-280 all-in.

4) Tough. There are a ton of recruiters on LinkedIn, but making the logistics work, demonstrating interest and knowledge in the market you are aiming for in Asia, as well as the local language requirements make it already quite hard for just anyone with an interest in Asia to pursue a buyside career. A lot of this is dependent on yourself in trying to make this move happen. But on the flip side, for many of the funds there is an added advantage to the perception of being trained in the US, and the more complex and streamlined deal experience you'll receive in the US. And so far, I would say that sheer amount of technical work you receive in the US puts you at a decent advantage to the local HK/SG BB IBD Analysts. And of course, there are also local SEA/China funds who just would never consider someone having never worked in banking in the local market.

 

1) My firm has a general minimum equity check deployment threshold of $100-200M USD. Valuation multiples from an internal standpoint are quite similar, we evaluate things on an EV/EBITDA basis, with probably a higher tolerance for higher EBITDA multiples initially given the higher growth nature of many of these deals. Leverage multiples are dependent on the type of business, as needless to say there are all types of businesses. Generally, for a classic "LBO" type target, with a entry multiple below 10x, with growth around 5-10% annually going forward, we can expected 35-45% leverage.

2) As mentioned above, Asia is quite hard generalize. Asia is a collection of multiple markets with differing characteristics. Japan/Korea will give you more 100% buyouts, given the carve out nature of the recent deal flow. For China/HK/SEA buyouts, you will see a larger management roll-overs (family business/succession). For growth equity/significant minority deals, you will many times see VAMs, or earn-outs, with deal structures all over the place depending on the deal.

 

Given that Asia is a much "younger" market, do you encounter significantly larger (by EBITDA, rev, etc.) companies that are family-owned/controlled, as opposed to the US where these companies would have been in play, privatized, or taken public decades ago?

How does this impact your sourcing and transaction dynamics? Do you find that being active in the local community - clubs, boards, etc. - is a greater source of alpha compared to US/G10 PE? Does this impact your ability to effectively negotiate entry/exit multiples?

Thank you for the insight.

 

1) I wouldn't say that's the most accurate way to look at things. Yes, there is inherently a larger proportion of family owned businesses in the more "emerging" markets China/SEA, with definitely a good amount in Korea/Japan too. But I would say in general, PE in Asia plays on a smaller scale and a decently sized buyout of a family business in Asia would more likely be considered closer to middle market-upper middle market territory in the US. The US UMM PE firms are more likely to be actively involved in the family-owned companies space. Another factor to consider is that the concept of "take privates" by a financial investor is still not as common in Asia as it is in the US. The market simply isn't as "actionable" for privatization transactions, with quite often regulatory risks and hoops to jump through .

2) As mentioned above, sourcing is still highly focused on relationships. Even when you play on the larger end of the market, there are deals still done in the 500mm-1bn+ space that haven't been through the BB auction processes. Many times, if there is a process in place, these are done through limited auctions with it ending up mostly to be a bilateral process. In that sense, the transparency of information isn't the best, and the buyer will be working mostly directly with the seller instead of being facilitated by the BB bank as a middleman. Also, there isn't as much "urgency" given the lack of a timeline and a clear "need" to sell, as facilitated by a standard auction process. Though for Japan/Korea, it is interesting to note that the large cap carveout deals are increasingly being run through auctions. On local community involvement, this is hard to say and will be highly dependent on the country/market.

 

Whatever your the market you are covering ends up being. SEA Asia usually prefers 1 of the local languages (Bahasa, Malay), though there is more flexibility compared to the other markets given the prevalent nature of English (and Singapore being the main hub). Japan, Japanese. Korea, Korean. China, Chinese.

Would caveat this by saying there are PE firms in Asia (none of the global ones) that target cross-border deals, with their headquarters in Asia. For these roles, they may very well not have as strict of a local language requirement.

 

Thanks for taking the time doing the AMA, really appreciate it - could you please speak to your experience recruiting for Asia PE from NY IBD? Did you mostly leverage off NY recruiters or did you also speak to local recruiters, if the later could you provide a few names that you thought were helpful? Was there any concern in regards to your (presumably) North American deal experience during the process?

 

I mentioned this above, but it was tough. The NY recruiters only had openings for global funds with Asia offices, and they were quite unpredictable (Advent and Silver Lake come to mind when they hire for their HK office I believe). Hiring needs in Asia are a lot more sporadic than the US, there isn't a core cycle where most of the incoming PE associates are interviewed. So be sure to be prepared as an interview can come any time. That said, there are firms that basically recruit every year at or around the same time, with BainCap and Baring PE being the main ones that come to mind. Your best bet are to connect with as many of the Asia recruiters, bearing in mind that there isn't as much of a concept of an "exclusive" mandate handed by one PE firm to a single recruiting firm as in the US. It is more of a numbers game, and getting your resume in through that recruiters to the firm is the end goal. LinkedIn is your best friend. A few ones are Executive Access, Laurus Group, Principle Partners, Wellesley Partners, and Cobalt Partners. Though there are so many recruiters working on the same role nowadays that they are quite easy to find. Just be cautious before sending your resume, and doing diligence on the recruiting agency as you would in the US (I personally wouldn't send my resume to Selby Jennings anywhere in the world for example).

In regards to your latter question, yes the North American deal experience was a concern for many of the more "local" global funds here. You have to understand that global funds in Asia focus on Asia deals, while pan-Asia/Asia-headquartered funds are more likely to look at cross-border deals. Hence, I found more difficulty proving my "local-ness" with the global funds in my experience. I would raise my hand for any cross-border deals (Japan/China clients) if you are at an EB that does some ex-US execution out of the US offices. Otherwise, I would just aim to brush up on local market knowledge to show that you are following the market and demonstrating interest.

To 7S's point above, that is more true for China offices and Hong Kong, and in SEA you still see American background South East Asians joining PE due to prevalence of English. China is very much a local market, so naturally the locally-educated students with HK IBD experience fare well for China PE. That is not to say that American backgrounds can't make it, just more so that you have to convince them of your ability to operate and thrive in a local environment, with local entrepreneurs, and in that working language. One other caveat is that each funds have their own preferences, so be sure to do your homework on LinkedIn beforehand to see how best to position yourself (some funds still very much value the international education/background).

 

How would you advise someone aiming to join a MF in HK from a MM US boutique in London? Do you have the names of some recruiters that one should reach out to? When would you advise one to start reaching out?

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Thanks for doing this. For the firms you've seen in the Asian markets, do you know whether any of them have infrastructure PE teams in Singapore, HK, etc.?

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.
 

What was the thought process behind going to B-Sch? Is this a geographical switch back to the US, or are you intending to return back to Asia PE?

Would a HSW Bsch Degree put you on some sort of accelerated track if you were to return to Asia PE, given that most of your B-sch network would be US centric?

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Thanks so much for doing this AMA - really appreciate it. My questions for you are:

1) how is the cost of living to comp ratio in asia compared to NY - specifically singapore or china?

2) were there any language barriers/would I be at a disadvantage for having a third-grade proficiency of chinese?

3) i've heard asian firms take a liking to american-educated students--is this still true?

4) how is the work life balance?

5) what are some of the top PE firms in Asia you would recommend checking out, specifically well-known for REPE (if you happen to know, otherwise "traditional" PE firms would be great to know as well)

Thanks again

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