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Goh Yew Hong

Goh Yew Hong is a co-founder of Axiom Asia Private Capital, a Singapore-based fund of fund manager founded in 2006. Established by a group of former executives from Singapore's GIC Special Investment, Axiom made headlines last year when it raised $440 million to invest in Asia-focused private equity funds. Axiom Asia represents a new generation of local fund of fund managers that have gained favour with investors outside the region who like the local and institutional experience of professionals like Goh. At GIC, which he joined in 1995, Goh was involved in investments in private equity funds, direct deals and co-investments. Sharon Lim spoke to him in January.

In terms of the market's evolution, have there been any surprises since you set up the firm?
We launched Axiom Asia in April 2006 based on our assessment that the Asian private equity market was at an inflexion point, similar to the European private equity market in the early 1990s. Many investors had a bad experience investing in Asian private equity in the early to mid 1990s, as the market then was very nascent and also hit by the financial crisis in 1997/98. But from around 2004, we began to see a steady stream of good exits from Asian private equity deals. There was also a critical mass of institutional quality Asian fund managers. Private equity markets in the various Asian countries were becoming more mature and there was greater acceptance of private equity as a source of funding and value adding.

We are positive about developments in Asia since our launch as both private equity funds raised and funds invested in Asia have increased significantly. There continued to be good exits from deals and fund managers have gained more experience.

There are certainly some surprises, for example the rate at which the fund sizes have grown – some fund sizes are three times or more compared with the size of their preceding funds.

Have you allocated more to pan-Asia or country-focused funds? Why?
Axiom Asia has a mid-market country funds focus, as we believe that there is more inefficiency here compared to the large pan-Asian funds. The spread of returns between fund managers will be greater in more inefficient markets, and this is where we feel we can deliver superior returns to our LPs if we can pick the top-tier fund managers.

“There are certainly some surprises, for example the rate at which the fund sizes have grown – some fund sizes are three times or more compared with the size of their preceding funds.”

In particular, we like fund managers who choose to remain in the mid-market space, even though they have performed well enough to raise large funds. These are fund managers who stick with their proven investment strategies, and hence more likely to repeat their historical good performance. Unfortunately, it is hard to find such managers.

If you had to pick three markets in this region to invest into in 2008, what would they be?
China, Japan and India. China and India are well known for their large population base and high economic growth rates. China also has a global comparative advantage as the “workshop of the world” while India is often referred to as the “back-office of the world”. Japan is the second largest economy in the world, with very low private equity penetration as a percentage of GDP, and also tremendous opportunity for operational improvements at the company level.

However, there are different challenges for LPs in these markets. There are many fund managers in China and India, and the challenge is to pick the right fund managers when many have limited track records. This is where we believe Axiom Asia has an advantage as our founding members have direct investment experience when we were with the Government of Singapore Investment Corporation. We are therefore able to assess the quality of existing portfolio companies of fund managers, way before these investments are realised. The challenge for Japan, on the other hand, is that there are not many good fund managers.

Would managers who have raised at least one fund before face any difficulties raising fresh capital in 2008? Would you back firsttime managers?
Many LPs are now assessing the impact of the credit crunch arising from the subprime mortgage crisis and the risks of the US economy going into a recession. It seems that investors favour Asia, which is relatively less adversely affected as compared with the US or Europe. The fund raising environment in 2008 is more uncertain, but our view is that good Asian fund managers will continue to be able to raise funds, barring unforeseen circumstances.

Axiom Asia is very selective in investing in first-time fund managers. These would typically be funds formed by experienced investment teams who have worked together previously with good track records, and are spinning out to form new funds. We are unlikely to invest in first-time funds formed by professionals who have not worked together before but are coming together for the first time for the purpose of raising a fund.