The Association of Southeast Asian Nations (ASEAN) region has become of increasing interest especially when compared to other emerging market regions. The launch of the ASEAN Economic Community in 2015 is expected to stimulate the Asian market even further and up from the dip in past years due to the global recession. Within the region Singapore is considered to be the private equity heavyweight. KITE Invest spoke with Director of the Singapore Venture Capital & Private Equity Association (SVCA), Doris Yee, to find out more about the potential of this dynamic investment community.
KITE Invest: As the Association focusing on the private equity and venture capital communities of Singapore, what effect do you foresee the ASEAN Economic Community having on investment and interest towards Singapore and in Southeast Asia overall?
Doris Yee: Singapore is a hub for investments into Southeast Asia. Unlike associations in most other countries, SVCA’s members are diverse; spanning teams that manage local to global fund mandates, small technology-focused incubators to growth/expansion capital to multi-billion dollar buyout funds.
In 2014, of the US$9.4 bn invested by Singapore-based fund managers, only 18% was invested into Singapore, 35% into ASEAN (including Singapore) and 65% outside of ASEAN.
The AEC is a positive step and significant progress has been made in terms of eliminating trade and tariff barriers. This should help in supply chain management and expansion of portfolio companies into the region. However, more work still needs to be done in other areas and sectors. ASEAN is non-homogeneous with diverse languages, cultures, economic and political interests so there is still some way to go in terms of harmonisation.
KITE: Singapore is considered to be the most developed private equity industry of the ASEAN members. Why is this? What is the general landscape of Singapore’s industry today?
DY: Singapore continues to be attractive as a base and hub for private equity and venture capital fund managers due to its stable and pro-business legal/tax structure, efficient infrastructure providing easy access to locations in Southeast Asia and quality of life enabling recruitment of talent for fund managers as well as service providers supporting the industry.
The private equity and venture capital industry continues to make steady progress. Based on an annual study by SVCA, total PE and VC investment into ASEAN exceeded US$5.8bn with Singapore-based fund managers involved in more than 55% of total funds invested. More than US$2.7bn were invested into Singapore target companies. Total assets under management in 2014 by Singapore-based fund managers remained flat at US$28.3bn.
KITE: What direction (deal size, sector and industry focus) do you see Singapore’s private equity industry taking in the next 5 to 10 years?
DY: Compared to the US and Europe, Asia’s private equity and venture capital industry is still young. But with the success being seen in China (the likes of Alibaba, Baidu etc), there is greater awareness of private equity and venture capital opportunities in Asia. Investments into Southeast Asia are poised to grow as the Chinese market becomes more crowded.
With a sizeable population of more than 600m in Southeast Asia, consumption-related investment themes will continue to be of interest. This can span direct consumption (food, beverage, retail, e-commerce) to distribution ( networks, transport, logistics). With rising incomes, opportunities also surface to fulfill rising expectations and aspirations such as healthcare and education.
The industry will continue to develop and mature. As entrepreneurs learn and understand more about private equity and venture capital, they will also have higher expectations in terms of value-add beyond financial capital. Private equity and venture capital fund managers are also becoming more specialised as different members have investment teams of different experiences and track records and hence the focus on different sectors where they can value-add through expertise and networks, different investment “bite-sizes” appropriate to their size of fund and geography (country, Southeast Asia or pan-Asia focused).
KITE: Over the course of SVCA’s 23 years what were some of the major milestones achieved?
DY: The SVCA was started in 1992 by the government’s Economic Development Board. It was started with tremendous foresight when there were only two venture capital members! Today, we are an independent association with more than 100 corporate members including venture capital, private equity fund managers (general partners and limited partners) and service providers.
Moving forward, we aim to play a greater role serving as a platform and voice for the industry so that private equity in Southeast Asia will be accorded greater recognition and higher priority in alternative investment allocation.
KITE: Speaking on behalf of the Association’s members, what characteristics are the most important in terms of deals and investments?
DY: I don’t think I can speak on behalf of all the Association’s members!
Private equity and venture capital are very long-term in nature; typically 5 to 8 years. Hence, the ability to work with the management team becomes extremely important in order to work together to grow the company and build greater value in order to realise a significant return.
KITE: What measures do the Association take as a matchmaker between investors and entrepreneurs?
DY: The SVCA has 5 major thrusts, namely:
1). Facilitating cooperation and interaction among its members; between GPs, LPs and agencies serving the industry through networking activities;
2). Developing professionals in the industry through training, workshops
3). Developing the environment through data gathering, studying and acting as a platform for exchange with government and regulatory authorities on regulatory and policy issues
4). Promoting awareness of the industry through awards
5). Building the industry through linkages with other centres of venture capital and private equity in the region
Although the Association organises many networking events, wherein participants may meet prospective investors, matchmaking between investors and entrepreneurs is not one of the key thrusts of the Association. Indeed, private equity and venture capital fund managers often pride themselves on their ability to originate proprietary deals. Hence, we encourage entrepreneurs to do their own homework and approach specific investors who are focused on their sector, stage of investment and hence can better value-add to their company’s growth.