Opportunities in Private Equity Investment

2017-04-12T11:43:54+08:00By |Unit Trust|

Opportunities in Private Equity Investment
By Ho Seng Yee (RHB Asset Management CEO)

fsm-Ho-Seng-Yee

What is PE?
Private equity is equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. (Investopedia)

Diversify asset class – shares, property , FD, alternative asset classes, etc
But are you diversified in PE?

Who are the investors (usually)?
Sovereign funds (ie EPF)

RHB believed 1st in Malaysia to introduce PE to private investors as wholesale fund for qualified investors

PE vs Public Stocks
Main difference: PE focus on buy low & “improve operations & grow company”
Liquidity: PE low (long time) vs higher liquidity
Key Participants:
• General Partner (GP) who is manager of the fund
• Limited Partners (LP) who are outside investors
PE long Investment Realisation Period (IRP) ie 7-12yrs
PE capita call period may not be at once but over eg 3-5yr period (Typically each call <30% ttl commitment)

Recent PE Example
Nirvana Asia Ltd (funeral services provider) offered $1.1b by US (as low comparative P/E ratio making it a good buy)

PE Advantages
• Access to info through meeting w mgmt team, due diligence & access to private info
• Private negotiation process = more attractive prices (usually)
• Exercise significant strategic control post-investment (board representation, voting rights, ops specialists, focus on long-term success not quarterly profits)
• Prudent use of leverage (may) amplify returns

Comparison need to account for risk-adjusted returns
CAGR +12.6% for PE investment from Y2000-2014
PE returns highest median 10yr median annualised return (better than fixed income, public equity, property)

Q&A
Q: Pre-IPO fund & special situations fund 1,2,3, & latest (4?) are they related to one another?
1-3 70% Asian, 30% global
New PE fund (not series 4) is global, multi-strategy & includes diversified investments.

Q: Pre-IPO fund very volatile & seems not meeting target & sinking below?
Pre-IPO 2 NAV high as if dividends distributed, NAV affected. Profits from exchange rate (~30% gains) already locked in.
Pre-IPO 3 dividend only after 1yr. Current volatility due to hedging & expenses. Best look at projects in fund which overall performing.

Q: Funds & shares investing qualifies for RHB premier banking? (Off-topic)
Based on specific T&C (~200k).

 

References

(E&OE. For info sharing purposes only. Not affiliated with Fsm or RHB)

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