K. O. Chia, Director , Grace Financial Ltd.
Following the success of the series in Washington, London and Mumbai, the EMPEA Fundraising Masterclass is travelling to Hong Kong and partnering with HKVCA to arm local fund managers with proven fundraising tools and global best practices. This in-depth workshop is designed for managers with funds in the market, first-time fund managers, and new hires to hear directly from leading LPs and industry insiders on actionable fundraising advice and common pitfalls. The real world perspectives and candid, closed-door discussions leave attendees better equipped to tackle potential fundraising roadblocks and realize targeted fund closes.
What is private equity's chief source of value?
Looking into the future, value creation from operational improvement will increasingly take the front seat in helping PE firms achieve their return expectations. This is a theme that is close to the heart of Joseph Wan, an operating partner of international private equity firm Cinven.
Wan suggests that in terms of PE value creation, the trend in operational improvements will continue, with multiple arbitrages being more difficult to achieve, and estimates that in order for a PE firm to generate an IRR of 25 percent it will have to deliver EBITDA growth of 10-15 percent per year in Europe and for Asian PE investors with little/no leverage the growth requirements are even higher.
"There is a growing standardization of operational improvement practices at PE firms but most are struggling to develop a replicable approach," Wan says. "Successfully creating operational value will require a new kind of partnership between deal partners, operating personnel and portfolio company management. This is particularly true in growth investment situations where the founder/manager is still the controlling shareholder".
There is a wide spectrum of models that different PE firms are deploying, some are more directly involved, others rely more on management. The type of expertise that is brought to bear also vary, some are topic experts or ex-managers while others are generalists and ex-management consultants. It is safe to say that there is no "one size fits all" and each PE firm needs to work out a model that is most appropriate for the requirements of the portfolio and most fitting to the culture of the firm.
In terms of value creation levers, research has shown that, in the West, the focus has been more on cash and costs, but less on topline driving activities. It is interesting to note, however, that in a recent HKVCA panel discussion, the panelists consisting of Asian PE firms indicate that they are leaving no stones unturned and focus on both top-line and bottom-line initiatives at the same time, particularly in China.
The question of whether to implement an in-house operational team or rely on external support is not easily answered because in large part it depends on the specific requirements of the portfolio company. As Wan notes, the advantage of an in-house team is in its ability to act very quickly and ensure follow-on projects are pursued with continuity, consistency and accountability. On the other hand, external support offers both breadth and depth of expertise and is irreplaceable in situations where a third-party, independent view is required.
Given the rapidly changing market dynamics, it is likely that 'horses for courses' will be the most common approach for a while, but as Mr. Wan noted, operational improvement will be an increasingly critical lever for fulfilling the return expectations of investors in the region.
Based in Hong Kong, Fresco Capital Advisors is an early stage and seed fund with a global perspective. Rather than follow a rigid process, we prefer flexible principles. Our starting point is always people and our most important guiding principle is contribution through entrepreneurship.
Davis Polk is one of the world's leading international law firms. Our key Asian practice areas include M&A, Advisory, Private Equity, Capital Markets, Credit and Litigation/Regulatory Enforcement. We have 90+ lawyers operating from Hong Kong, Beijing and Tokyo offices offering broad spectrum and expert legal advice across the Asian markets.
Poseidon Research China Co. Ltd.
Prometheus is a boutique merchant bank and strategic advisory firm that specializes in China, and greater Asia, cross border transactions. We focus on joint venture development through the injection of strategic capital & expertise; advising clients on their international strategies and assisting in the execution; and raising capital funds.
Founded in 1875, Proskauer is a global law firm providing a variety of legal services to clients worldwide. The firm's Hong Kong and Beijing offices represent both multinationals investing and doing business in Hong Kong, Beijing, China and throughout Asia, as well as Asian companies investing and doing business around the world. The offices focus on corporate and transactional matters, including private equity, venture capital, fund formation, mergers and acquisitions, capital markets, foreign direct investment, joint ventures, labor and employment.
Sino-Ocean Land was listed on the Main Board of HKEX in 2007 (stock code: 3377). We are mainly engaged in the development of mid to high-end residential properties, premium office buildings, retail properties and serviced apartments; the sale of real estate and related business, landscaping, property management and hotels and club operation.
UBS Fund Services is a global fund administrator providing professional services for traditional investment funds, managed accounts, hedge funds, private equity funds and other alternative structures. With service centers located in Canada, Cayman Islands, Ireland, Jersey, Luxembourg, Singapore, Switzerland and the United States together with business development and client service offices located in Hong Kong and the United Kingdom, Fund Services is dedicated to providing a comprehensive range of asset services to clients around the globe.
Avia-Tek Management Consulting (Shanghai) Co. Ltd.
Avia-Tek, headquartered in Shanghai, China, provides market research, management consulting, and M&A services for OEMs, manufacturers, airlines, financial institutions, and other organizations involved in the global aviation industry.
On October 7, 2013, Joseph Wan, Cinven HK Ltd, served as moderator for an outstanding panel of speakers who together drew on their years of experience and shared with an audience of close to 100 attendees their thoughts on how to add operational value to portfolio companies. The panel included Leong Cheung from Bain Capital, Ivan Kwok from Cinven HK Ltd., James Redmayne from CVC Capital Partners, Derek Sulger from Lunar Capital, and George Lan from Resources Global Professionals. We would like to thank Resources Global Professionals for sponsoring this hugely successful seminar and cocktail event.
A luncheon talk delivered by Alexa Lam, the Deputy Chief Executive Officer of Securities and Futures Commission (SFC), and discussing the latest industry updates from a regulatory perspective was held earlier this month at the China Club. Supported by law firm Deacons, close to 60 members attended this important event which highlighted the increasingly strategic role of private equity in the economy.