Often regarded with suspicion, private equity (PE) is becoming increasingly popular in Asia as investors look to diversify their portfolios. Alan Alpert, senior partner for M&A transaction services at Deloitte in Hong Kong gave CHINA ECONOMIC REVIEW the lowdown on industry trends.
Q: Is there a move towards more private equity investment in Asia?
A: I think many of the countries in Asia are trying to understand private equity and they are very nervous. It is the negative image of private equity and it’s also the foreigners. These are all foreign private equity groups that are coming in. So you have the countries that are really studying private equity and you have some countries that have acted, some would say, not rationally. You could say this happened in Korea and Japan, because of some issues concerning private equity got blown out of proportion.
Q: How much money is flowing into private equity?
A: It is very difficult to get behind the amount of money flowing into private equity groups. But I think it is fair to say that there is still a significant amount coming from Asia into private equity. Some of it is still people trying to understand private equity, some of it is people trying to invest in the US.
Q: Is there too much money chasing too few deals?
A: You need to talk about it in relative terms. I have been around the business for 30 years and every couple of years people say there is too much money chasing too many deals and then the economy slows down and people pull back and then the cycle begins again.
Q: Are deals getting more expensive?
A: I think the concept of overpaying is not as true as everybody says. These are experienced people. Yes, they do need to deploy money. Yes, they make money by buying and selling companies, but at the end of the day they are not taking a short-term view. They are very competitive in purusing investment dollars. If they buy a company and can’t sell it in a couple of years and get a return, they are not going to raise their next fund.
Q: Is the emergence of new money from developing countries changing the way private equity works?
A: Absolutely and unequivocally. You go back five to seven years and there weren’t too many private equity groups that would go into an emerging market… What is the right model for Asia? It is clear it is not the US model. It’s probably a combination of that and the Asian model. Does it evolve into a new way of doing deals? Absolutely.
Q: What do you mean by the Asian model?
A: Take highly leveraged deals. People get very upset about piling a lot of debt into the company – it’s just not the way deals are done in Asia. You could say that’s a US way of doing things. The US market has a lot of big company transactions and a lot of auctions where people have lots of buyers. In Asia there are very few auctions. Some of it is culture, some of it is the size of the deals.