Greetings from Jakarta, home to 30 million people (metro) and half as many cars, judging by traffic. I’m nearly halfway through a circuit of Southeast Asia, where I’ve been meeting with some great managers and discussing the evolution of the region’s private markets landscape.

Over the last five years, LPs have consistently ranked Southeast Asia as one of the top two most-attractive markets for GP investment. Yet this year’s Global LP Survey from EMPEA highlights the perennial disconnect:

  • 41% of respondents plan to begin or expand their commitments to Southeast Asia over the next two years;
  • However, 32% say a limited number of established fund managers deters them from investing in the region (the highest percentage of any EM region); and,
  • 25% say the scale of the opportunity to invest is too small (also the highest percentage across all EMs).

We share a few our of key takeaways from EMPEA’s survey below, but the fundraising environment is becoming more Dickensian by the day.

In any event, I’m off for a weekend in Siem Reap to admire what Norman Lewis described as “probably the most spectacular man-made remains in the world.” Then, I’ll be heading to Ho Chi Minh City for AVCJ’s conference. Let me know if you’re in town.

If you’re interested in having Portico produce a report on the private markets landscape in Southeast Asia, then please drop me a line.

Best wishes,
Mike

A Grim LP Survey

Some depressing reading is on offer in EMPEA’s 2017 Global LP Survey. There are a number of interesting nuggets throughout the report, but I came away with three big takeaways:

  • Talk to the hand — The pie of capital earmarked for EM PE is shrinking. To wit, 25% of LPs plan to decrease the proportion of their PE allocation targeted to EMs over the next two years; this figure jumps to 36% for LPs that have been active in EM PE for more than 15 years.
  • Show me the money — The percentage of LPs expecting at least 16% net from their EM PE portfolios has continuously declined over the last five years: from 61% in 2013 to 43% in 2017. It’s also the first year that this figure dipped below 50%.Though only 17% of respondents expect ≥ 16% net from their developed markets portfolios, I suspect the drivers of these expectations are different: in EMs, it’s a lack of distributions coupled with FX, while in DMs, a surfeit of capital and leverage is fueling frothy entry valuations.
  • Chasing the rabbit — It’s hard not to think LPs are exhibiting some procyclical behavior: India rings in as the most attractive market while Brazil languishes at sixth; health care and consumer goods / services rank as the most attractive sectors.

    ¯\_(ツ)_/¯

A Platinum Lining?

I always make time to read what KKR’s Henry McVey has to say about the markets, and his latest report, The Ultra High Net Worth Investor: Coming of Age, is no exception.

Whereas family offices constituted 6% of the respondent base of EMPEA’s LP Survey (call it 7 or 8 respondents?), KKR surveyed over 50 Ultra High Net Worth clients (defined as investors with ≥ $30m in investable assets and including family offices). The findings should provide a modicum of encouragement to private markets fund managers, as UHNW investors have a tendency to adopt a genuinely long-term perspective, and embrace alternative assets (see charts below).

Money shot: The stock of global HNW assets stands at $60 trillion with a 5-year CAGR of 7.4%, compared to global pension assets of $36.4 trillion and a 5-year CAGR of 5.8%.

KKRUHNW

Ahlan, Bimbo!

The Mexican behemoth Grupo Bimbo has acquired Moroccan baked goods company Groupe Adghal as its toehold in Africa. Three thoughts:

  1. Morocco continues to serve as a popular entrepôt for PEs and corporates to access Sub-Saharan African markets.
  2. Bimbo’s ambitions are truly global. They’ve swallowed up Thomas’ English Muffins, Entenmann’s, Arnold Bread, Sara Lee, and Boboli Pizza north of the border (wall?), and they’re planning to ramp up a growth through acquisition strategy in China.
  3. Personally, my heart warms at the prospect of children around the world sinking their teeth into a sleeve of ¡Sponch! cakes.

Speaking of Hispanophone companies pursuing acquisitions in Africa, there was a super interesting announcement from Helios Investment Partners and the Spanish multinational GBfoods earlier this month. The firms are pursuing a joint venture to create a leading pan-African FMCG franchise. I think we’ll continue to see PE firms teaming with multinationals to de-risk acquisitions and validate their entry into new markets; it’s a compelling proposition.

Out of curiosity, I investigated the number of Hispanophone acquisitions in Africa (excluding our friends at Mediterrania Capital Partners). Across 30 deals since 2008, six have been in metals and mining, and four in F&B. Small volumes, but the trend is up and to the right (see chart below).

May 2017 Hispanophone Exhibits

The Saga Continues

Baring Private Equity Asia and CPPIB announced that they are taking Nord Anglia private for $4.3B. Baring originally took the company private in 2008, led the firm through a $350m IPO in 2014, and a $170m follow-on issuance in 2015. Over the last four years, Nord Anglia executed at least seven acquisitions, according to Thomson Reuters Eikon. The company’s revenues grew from $323.7m in 2013 to $856m in 2016, with net income swinging from a loss of $23.3m to earnings of $47.1 over the period (and posting a 17% ROE in 2016).

Fashionably Late?

Blackstone has decided to join the private debt party in India. Apollo (through a JV with ICICI Ventures), Baring Private Equity Asia, Clearwater Capital, KKR, and Piramal—among others—have been in the mix for some time. It’s a huge market, but one wonders if the bar’s running out of elbow room.

From the Bookshelf

A seed that sprouts at the foot of its parent tree remains stunted until it is transplanted … Every human being, when the time comes, has to depart and seek his fulfillment in his own way.

— R.K. Narayan (trans.), The Ramayana (Penguin: 1987).

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The information presented in this newsletter is for informational purposes only. Portico Advisers does not undertake to update this material and the opinions and conclusions contained herein may change without notice. Portico Advisers does not make any warranty that the information in this newsletter is error-free, omission-free, complete, accurate, or reliable. Nothing contained in this newsletter should be construed as legal, tax, securities, or investment advice.

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