Explorer mindset

As China and India absorb large capital flows, investors are willing to explore new opportunities in Southeast Asia, with Indonesia and Vietnam at the top of the list

Although China and India have captured investors’ attention from 2010 to 2011, investor interest in these two countries is diminishing as more Asian LPs are looking to divest their interests and seek new opportunities, particularly in Southeast Asia.

Indonesia and Vietnam were the standouts among the Southeast Asian countries. Indonesia is identified as the next hotspot for private equity investments over the next 12 months due to Indonesia’s low GDP per capita and accelerating growth, which increases the appeal of the country in the eyes of investors.

As more LPs and GPs look to invest in Indonesia, the list of private equity funds targeting the country has consistently grown in recent years. Fundraising amounts are steadily increasing. Saratoga Capital’s new fund launched in 2011 with a target of $450 million (the previous second fund closed on $300 million). Northstar Pacific Capital’s third fund closed oversubscribed last year on $820 million – the largest pool raised for Indonesia to date. The success of Northstar in exceeding its target may support the message to GPs that raising funds targeting Indonesia is a possible route to embark on.

Vietnam’s economy offers challenges due to macroeconomic problems including a depreciating currency, close to 20 percent inflation, plunging property prices and a more than 20 percent stock market decline.

However, valuations are coming down and multinationals are going into the country to buy again. 2011 provided some encouraging signs for the country with KKR’s $159 million stake in Masan Consumer putting Vietnam on the private equity radar once again.

In the same year, eight Vietnam-targeted funds were launched. The largest was Saigon Asset Management’s growth capital fund targeting $300 million. According to the 2011 World Bank Ease of Doing Business ranking, Vietnam has improved its overall position from 88 to 78, being one of the top ten most improved economies. This is due to several reforms introduced by the Vietnamese government, which made it easier for investors to obtain credit and start a business, therefore creating a more favourable environment.

However, it is important to note that not all investors find Vietnam-focused funds appealing. One Singapore based investor shared his views on Vietnam’s private equity market. He pointed out that the current existing macroeconomic problems are what investors have to look into before making any commitments.