PRINT THIS PAGE Institutional Investor Profile: Veronica L John, Senior Investment Officer, Asian Development Bank15/03/2006. Source: AltAssets. 
Veronica L John on private equity investment opportunities and risk in Asia, the countries ADB has invested in, and on investment trends in Asia's emerging markets.  Asian Development Bank, founded in 1966, is a development organisation with headquarters in the Philippines and offices across Asia and worldwide. Its primary mandate is poverty reduction in Asia. ADB is owned by its 64 members, comprising states from around the world, which own shareholdings in the bank
ADB's activities and services comprise private equity fund investments, equity investments in companies and loan products. ADB started investing in private equity funds in 1984. To date the bank has invested in a total of 39 funds with total committed capital of $3.7bn. ADB's portion of capital committed to this portfolio is $392m, of which approximately $231m has been disbursed. ADB has 17 funds to which the organisation itself has committed $221.45m of a total of $1.2bn committed capital.
John joined ADB four years ago. Over the past two years she has been responsible for building ADB's private equity fund investment operation. Prior to this she was involved in a variety of projects at ADB. John has got almost 20 years of business experience, including experience in investment banking, sector development and privatisation.
What type of investments do you look for?
'Our primary mandate is to develop Asia's emerging private equity industry. Our aim is to support fund managers that can invest successfully and can generate returns that ultimately attract private capital to the private equity industry in these countries.
We never take more than a 25 per cent stake in a fund. We try to get other institutional investors to invest alongside us and provide our fund managers with informal networking opportunities.
We invest across Asia's emerging markets and that includes countries and regions such as China, India, South-East Asia, South Asia and Afghanistan. We do not invest in any of the developed markets in Asia (Singapore, Hong Kong, Taipei, Taiwan, Japan and Australia). Most of our funds have a regional or a country-focus but the majority of them is not industry sector-specific.
ADB focuses on the middle market, and the funds in our portfolio invest in small to medium-sized enterprises.
Our average investment size is about $20m. In countries such as China and India we make larger commitments - of up to $45m. In smaller private equity markets such as Afghanistan, Vietnam or Thailand, the amount invested per fund is much smaller, between $5m and $10m.
Over time, we often decrease the amount we invest with a certain firm because that is part of our role. If a fund manager has been successful with their first fund, they are likely to attract more interest from other investors. While we are, just as any investor, focused on maximising returns, our role as a development bank is to help funds attract more money from other sources. Once a firm becomes so successful that it no longer needs our support we put our capital resources elsewhere, where other investors are still a bit shy.
In 2005 we committed about $121m to private equity funds. In terms of number of deals, we committed to eight private equity/venture capital funds last year. For 2006 our private equity operation has $225m to commit. We expect to make about ten commitments to funds this year.
Do you co-invest alongside your fund managers?
'We have not done any co-investments yet, but we would like to do some in the future. With our direct investments we focus on financial institutions and infrastructure, and - potentially - we can co-invest with our fund managers to the extent that they invest into these areas.
Our team is looking to continue to make direct investments in various financial institutions and infrastructure providers without our funds.'
How do you find out about good investment opportunities?
'We constantly research all the players and as we are well-known in the market, we are also approached by teams on a regular basis. Generally we are very active: we have very strong relationships in the private equity business and use networking events such as conferences to build new relationships.
When you operate in an emerging private equity market it is pretty hard not to know everyone. We can say that we have met and continue to meet regularly all the major firms in Asia's emerging markets. In some of the smaller countries there are just three or four people active in private equity investing. In China and India the situation is very different, but even there, the private equity markets are small enough to get to know everyone in a relatively short period of time.
We also find the Asia-specific news and research reports that are already in the market very useful. In the future, we hope to see more of them. We trust that private equity and venture capital associations in Asia will soon have a much bigger role than they have today and produce much more research material.
How do you conduct your due diligence?
'As we often invest in first-time funds, or even first-time funds raised by first-time teams, we heavily rely on the track records of the individuals. We take a very careful look at every investment they have done in the past. If the team has worked together before we analyse how they worked together and who contributed what. We need to get a good understanding of the dynamics in the team and the team members' ability to work together.
It is usually not too difficult to get information on people's track records because the industry is pretty transparent. The individuals can provide us with access to the companies that they invested in previously. We also do a number of reference calls and speak to a range of senior partners in the industry.
If we decide to make a commitment, we always take an advisory board seat. That gives us the chance to monitor the team's performance, help the firm with our expertise and, later, decide whether we want to invest in the team again.'
What do you look for in a good private equity fund manager?
'We are looking for local teams with a convincing track record. Ideally the team should have some experience of working together. Another important factor is the firm's strategy.'
How do you put together your fund investment portfolio?
'We like to have a fair amount of diversification. We invest large amounts in India and China, and smaller amounts in countries such as Thailand, Vietnam and Sri Lanka. This year we are looking to make our first small commitment to a fund in Pakistan.'
What do you say when people ask you 'Isn't it still too risky to invest in Asia's emerging markets?'?
'I think investing in Asia is still a fairly risky business if you do not have a local presence, and many investors still do not have an Asian office. It is our task to make new investors in Asia feel more comfortable with their first investments in the region. We have the local knowledge, the local presence and the experience. We are not just looking to attract more investors from Europe and the US but also from Asia, where there is an increasing number of institutional investors with the financial power to make a real difference to the private equity markets in Asia.
From a macro-economic perspective the risk profile is getting better. The economies will continue to grow, and there will be more investment opportunities to invest in companies. Over the past ten years the level of sophistication of entrepreneurs has improved significantly. The thing that needs to improve is the regulatory environment, and there needs to be more consistency and predictability when governments change.
Many private equity fund managers are now raising their second and third funds. They have a track record and their returns should get considerably higher in the future. You can make very good returns in the region but you have to pick the winners, just as in any other market.'
Which of Asia's emerging markets are the most interesting for private equity investments at the moment?
'The private equity markets in India and China seem to be developing very fast and faster than the other markets in Asia's emerging markets. Currently there is a lot of hype about India. Billions of dollars are coming into the market. I fear that some of them could lose quite a bit of money, and this may sour investors' enthusiasm about the country and the region.
Right now, there is also a lot of excitement about Vietnam and Malaysia, although in Malaysia you still have the issue that the government has invested more in private equity than the private sector.
Recently we have also been seeing some interest in Pakistan. However, there is still a fair amount of political risk involved when you invest in Pakistan.
There is still very little activity in Thailand and the Philippines because the economic environment and the culture there do not contribute to a favourable climate for private equity investments.'
What advice would you give to an investor looking to make their first commitments to funds in Asia's emerging markets?
'Speak to people who have been investing in the market for some time, especially to institutions such as ADB or CDC, who are specialised in investing in emerging markets.'
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