PRINT THIS PAGE Return of a Public Affair07/12/2005. Source: Asian Private Equity Review.
Publicly-listed private equity funds are making a comeback, says APER, although in different Asian markets this time February last year, Ripplewood Holdings ('Ripplewood'), the US-based private equity management firm, redefined the course of Asian private equity history when its Shinsei Bank made its debut on the Tokyo Stock Exchange. The phenomenal success of this investment erased skeptics' queries as to whether the private equity investment model could be profitable in Asia.
This year, Ripplewood created another ripple in the private equity cosmos when it listed its Japanese assets on the Euronext Brussels exchange. On 23rd March, RHJ International and existing shareholders offered 20.3 million new shares and 8.4 million existing shares respectively at 19.25 Euro (US$24.22) apiece to public investors. On their debut, the shares closed at 20.80 Euro, 8.1% higher than the offer price. Over the past two months, RHJ International's shares have enjoyed a strong response from investors.
Ripplewood also made no secret of its intention to list its assets in Japan on the local bourse. The move of the US-based private equity firm which made its name in the Land of the Rising Sun, sparked speculation that other major private equity fund houses would follow a similar path to raise investment funds. The merits of having private equity portfolios subject to public scrutiny have become a discussion topic. In Asia, listed private equity funds have long been part of the landscape. In fact, since late last year they have made a comeback, albeit in a different fashion.
The Past Record
A decade ago, when China fever led Asia's economy to an era of boom, listed funds mushroomed largely for the developing markets, such as China, Indonesia, Thailand and Vietnam (fig.15). However, most failed to sustain investors' interest and traded at sharp discounts to their respective net asset values.
Investors' confrontation with Templeton Investment Managers (Singapore), managers of the New York-listed Templeton Vietnam Opportunity Fund, underscored the level of disappointment expressed by institutions towards one of Asia's most acclaimed emerging markets gurus. In 1998, four years after Templeton Vietnam Opportunity Fund was established, the funds' investors were so irate with its performance that some of them turned to legal channels to settle their differing opinions.
One of the key issues was the fund manager's inability to locate suitable opportunities in line with the fund's investment focus. The bitter disputes reflected an oversupply of capital from public investors to a private equity market that has not been able to grow in pace with the gush of foreign capital inflow.
Meeting the Public Again
But this time, listed funds are sprouting up or originating in developed markets with their focus substantially on investment opportunities in those markets, especially Australia. Since December last year, the Australian Stock Exchange has witnessed the debut of five private equity investment vehicles. In May this year, Australia's Macquarie Bank's Macquarie International Infrastructure Fund took the model outside of its borders, raising S$737 million (US$444 million). Touted as the largest share offering on the Singapore Exchange Ltd. since SingPost's public offering two years ago, Macquarie International Infrastructure is a hybrid investment vehicle for both listed and unlisted stocks in a broad range of infrastructure sectors. Although it is promoting a targeted minimum of 7.1% return, if the performance of its sister funds listed on the Australian Stock Exchange is an indicator, there are signs that the public market's appetite for private equity assets is waning.
The public listing train in Australia began with ING Investment Management's ING Private Equity Access which made its debut in late November last year. At A$2.00 (US$1.56) per share, the listing of ING Private Equity Access was a roaring success, raising a targeted A$120 million. Within a month of ING Private Equity Access' listing, two additional private equity investment vehicles placed their respective shares to public investors. Souls Private Equity Fund, managed by Souls Funds, came to the market and successfully raised A$100 million.
But it was the offering of Allco Equity Partners, managed by Allco Private Equity Partners, which underlined investors' thirst for private equity stock. The largest hybrid fund ever listed on the Australia Stock Exchange, Allco Equity Partners invests in both listed and unlisted stocks. Although response from retail investors was lukewarm, Allco Equity Partners nonetheless reached its target of A$500 million.
The positive responses to these funds led to more fund raising initiatives in the first four months of 2005. In February and March, the Australian stock market welcomed the debuts of both Babcock and Brown Capital and Macquarie Private Capital Group. The former received overwhelming response, raising a targeted A$1 billion. The latter secured A$55 million from public investors, with its sponsoring institution, Macquarie Bank, injecting an additional A$51 million of assets. As a result, Macquarie Private Capital Group's debut market capitalisation was boosted to over A$100 million.
Public Fatigue
After a flurry of listing activities initiated by various management firms for their respective funds, public investors are exhibiting signs of satiation. Since listing, the share prices of all companies have declined against their respective listing prices. In fact, compared to the Australian All Ordinaries Index, the four earliest companies to list have underperformed by a margin of between 9% to a staggering 33%. Macquarie Private Capital, the newest entrant, has faired the best, underperforming the market by just 3%.
There are further signs that investors are cooling off on publicly-traded alternative investment stocks. In early April, two investment vehicles that target investment opportunities in alternatives assets, Macquarie Capital Alliance Group and Everest Babcock Brown made their respective debut. Both fell below their offer prices in the first day of trading. The former saw its share price slide by 7.5% to close at A$1.85 while the latter declined by 5%, to close at A$4.75. Similar to the publicly-traded private equity investment vehicles, both Macquarie Capital Alliance Group and Everest Babcock Brown are currently trading below their respective offer prices.
On the Euronext Brussels exchange, RHJ International's shares are beginning to show signs of fatigue with respect to their appeal to investors. Their recent closing prices have slid to 18.80 Euro each, representing a decline of 2.3% from the initial offering price (fig.16).
Macquarie International Infrastructure has not taken any chances. Coinciding with its initial public offering was a full page colour advertisement detailing the fund and its prospects. The move appears to have paid off, at least at this juncture. The offer was 12.75 times subscribed and its shares closed with a 14% gain at S$1.14 on 27th May, their first day of trading.
Observation
With all the capital being raised and made available for private equity transactions, it begs the question of whether investment managers will be able to effectively put the capital to work. A seasoned investor dismissed worries of capital overhang. He cited the market in Europe as an example. "Interestingly, the market grows as a result of an abundant supply of capital".
The future performance of the host of Asian private equity funds that were recently on various stock exchanges will be the basis of a new set of benchmarks. It will be a fresh statement as to whether private equity assets in Asia are commanding the necessary quorum to capture and sustain public investors' interest (fig.17).
Asia Private Equity Review (APER) is the foremost voice on matters related to private equity/venture capital in the region. Well-recognised as being the singular source for accurate and timely news, in-depth analysis and global perspectives, APER is published by the Hong Kong-based Centre for Asia Private Equity Research. For further information please visit their website at www.asiape.com or email them at info@asiape.com
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