Running Head: PRIVATE EQUITY IN SOUTHEAST ASIA
Private Equity in South East Asia:
Challenges and Opportunities
Daniels College of Business – University of Denver
PRIVATE EQUITY IN SOUTHEAST ASIA: CHALLENGES AND OPPORTUNITIES Abstract
Private Equity (“PE”) has played a big role in the investment world, not only because it generates relatively more return for the investors compared to other forms of investments, but also it has a huge market capitalization in terms of invested funds. As many investors and finance people know, the United States has been the biggest playing field for PE firms since 1980 as it is a developed market with mature structure and clear regulations. However, due to competition and limited resources in the United States, investors and PE firms have a growing need for a new market to grow and expand their business. One of these new, emerging markets for PE is the Southeast Asia region. This Southeast Asia region is characteristic of developing countries that are rich with natural resources. Most of the countries in this region of Southeast Asia have a lot in common including; they are developing countries, they are rich with natural resources and they all have a big market in terms of population. One of the exceptions in this region is Singapore as it is considered a developed country, especially in the finance sector. Southeast Asia is very lucrative in the sense that it offers a lot of opportunities for investors, including PE investors and firms, however, in order to realize the revenues and returns of these opportunities these firms would need more knowledge on how to deal with the challenges in this new emerging market. Private Equity in Southeast Asia
The emergence of Private Equity (“PE”) markets outside the United States and Europe has significantly broadened the scope of portfolio diversification. Also, due to the growing importance of PE in nontraditional markets, the need for investors to broaden their knowledge has increased significantly as knowledge is the key in regards to international investing as a whole. Hence, the purpose of this paper is to provide relevant information about PE market in the Southeast Asia as well as provide recommendations on how to deal with the challenges. Market Typology
With the exception of Singapore, most companies in the Southeast Asia region are developing countries and are therefore referred to as an “emerging market”. Table 1 describes the market typology of PE market based on four market types. Table 1 - Market Typology
Mature Markets Non-traditional markets in advance economies Emerging markets Frontier markets Economic structure Sophisticated Sophisticated Relatively developed Early stage of economic/financial development Economic stability High High Track record is being establish Track record still short Size of the economy and growth Large/high level of prosperity Varies Varies with high growth prospect Small size, lower level growth Debt markets Highly liquid Liquid Emerging Still embryonic
Exit markets Developed public equity markets with high market capitalization Developed public equity markets with significant market capitalization Relatively developed public equity markets with sufficient market capitalization Underdeveloped Global PE firms Investing Investing Investing Very limited, if any investment Domestic PE industry Developed Emerging Emerging Rudimentary PE exits Considerable history Track record being established Visible exits already occurred Very limited Key markets United States, EU-15, Switzerland Australia, Canada, Hong Kong, Japan, Singapore Brazil, China, India, Russia, South Korea, Slovenia, South Africa, Southeast Asia countries: Indonesia, Vietnam, Thailand, Malaysia, Philippines Bulgaria, Colombia, Pakistan, Kazakhstan, Tunisia, Ukraine Source: Cornelius (2011).
The term emerging markets has been widely adopted by international investors to refer to all developing countries. Specifically,...