Investments in Asia: Eastern Promise

Paul Mackintosh
08 September 2010

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European nations may have deep historical ties with the Asia Pacific region, but their GPs, and to a lesser extent LPs, have largely been late entrants to the region. This may be changing, though, as Asian Venture Capital Journal’s managing editor Paul Mackintosh outlines

There is no question that Europe suffers from under-allocation to Asia - a deficit that investors are finally moving to address under the pressure of Europe's continuing underperformance. With Asia showing strong economic growth and a maturing private equity industry, the growing interest in Asia Pacific appears to be consistent across GPs and LPs alike.

For European LPs the region offers specific benefits, especially in diversification, while for European GPs there exist opportunities in the more developed markets, such as Australia, Hong Kong, Japan, Korea and Singapore, as well as in the more emerging, higher risk areas such as China and India.

Admittedly to date, the experiences of European GPs and LPs in Asia Pacific have been mixed, dictated partly by their investment preferences, but also by their approach to market entry. In many cases European entities have been less aggressive than their US counterparts and have been slower to build local teams. But many GPs are coming around to the fact that it is essential to have a direct presence in the region, regardless of whether they intend to invest from a dedicated fund or a global fund.

And, despite their market positioning relative to the biggest American firms, many European investors, do seem to feel that they have something different to offer Asian investees, and some advantages in the region. One aspect of this is certainly European familiarity with working across different cultures, jurisdictions and languages.

"When we look at Asia, we see Asia as a collection of different markets with a variety of characteristics, which resembles Europe more than the US," notes Alex Emery, who heads Permira's Tokyo office. "The US is a homogeneous market." He also sees some commonality in the types of company and ownership situation that they seek to invest, given Europe's oft-remarked propensity towards family ownership structures. "We see more similarities. In Europe, outside the UK, we typically deal with families, even in the very large deals."

Potential investment targets in Asia may also be eager to partner with European GPs in order to gain market access, but also other critical advantages, in EU markets. "Many Asian companies we come across are actively looking to get a platform in Europe and the US. Ideally, they are seeking to buy a brand name in Europe," observes Fredrik Ating, senior partner at EQT. He sees branding, marketing and technology as the three key assets most likely to interest a potential Asian investee.

"There is a lot of interest from investees and companies that are looking to acquire assets in the West," confirms Emery. "The US is a better understood market. There are a lot of people who can explain the US to Asian companies. There are relatively fewer people who can explain Europe."

A more detailed commentary on the lure of investing in Asia Pacific appears in the upcoming September issue of unquote" Private Equity Europe.