Wednesday, July 1, 2009

Ekuiti Nasional Berhad - EKUINAS

Najib has announced the setting-up of EKUINAS, a government instituted and backed private equity fund management company that supposedly will be allocated an initial RM500m and subsequently grow to a significant fund size of RM10b.

Although government owned, the proposed management and running of the company and funds under management is said to be handled by experts, private sector professionals or in my own terminology - PEPs or Private Equity Professionals.

The funds focus will be on high-growth potential sectors and Bumiputera companies with matching growth potential in their chosen industry sectors. At the time of publishing, the identified or targeted sectors which the administration has decided to be the focus of the funds investments is in the areas such as education, tourism, and oil and gas.

Based on the little information that is available so far in the public domain, it appears that the investment horizon and therefor the reach of the fund will extend beyond that currently avaible from PNB, EPF, PNS and the likes. It looks like the fund is willing to undertake higher risks and come in at a much earlier entry point in the business or company life-cycle. The fund also looks to offer funding for "real" or "big-ticket" private equity deals and transactions as it aims to facilitate mergers and acquisitions involving bumiputera-owned companies and other local and foreign entities. I think this is a good step in the right direction as at the moment there are no explicit sources of equity funding for M&A deals available to Malaysia promoters, whether it be for local or foreign acquisition growth.

So far EKUINAS and what it is being made to look like in the press, looks.....very interesting. The government however is still finalizing the structure and mechanisms. I am actually a bit excited about this fund. If truly it materializes they way it is currently proposed and presented, i believe a lot of good things will come out of it.

Tuesday, June 30, 2009

Private Equity Investment in Malaysia

What is the status of private equity investment in Malaysia? How many organizations, institutions, and even individuals are there in Kuala Lumpur who actively invest and participate in private equity? At what stage of investment or business cycle do these investors look to invest? What's the appetite? Any sectoral preference or deal size? How about tenure and investment horizon? Are we still looking at a hurdle rate of 25% IRR or are there some out there who insist on 35% IRR?

How's the dealfow? What and where are these deals coming from? What kind of quality are we looking at? How about the degree of complexity required of the deals? What and how are deals done in Malaysia?

Wait a minute!... Do we really understand private equity in the first place??? What is private equity? Is venture capital still alive? How about mezzanine? What is private equity? How does it differ from public equity asides from one being private whereas the other being public? Do people and does the investing community and capital market really understand? Is there enough literature on the subject? Am pretty sure there is but reading and becoming knowledgable about a subject does not amount to learning and understanding. So how and what can we do to ensure better understanding of private equity? Am sure practitioners agree that better understanding by all those involved and related would go along way to enhancing the development of the industry and provide the needed catalyst for steady and sustainable growth of the private equity industry in Malaysia.

Some published sources state that the number of private equity professionals (PEPs) in Malaysia as at 2008 stands at about 100 odd. Now how did they come to deriving this figure? How many VC and PE outfits are there in Malaysia? If we assume that the average size of an outfit is 10 people then there should be roughly 10 companies in KL doing VC/PE. Is this correct? So anyway, lets assume that the number is correct, now how many of the 100 PEPs have more than 5-years experience in the business? Really?? Keep in mind that the VC/PE scene in Malaysia is only slightly more than a decade old. Look around at the people and faces in the room the next time you are at a VC/PE related seminar or conference and you will notice that many of the faces you see were not around less than 3-5 years ago. Infact i would say that maybe only 15% of the 100 odd PEPs we see today have actually gone through a full cycle of investment including roughing it out through at least two notable regional recessions. What is the point here? The issue is about understanding and experience. Both in the case of the practitioner i.e. the Fund Managers, as well as the two clients on either side of the Fund Manager - the investors and the investees. Do we have the minimum number of hours of experience and exposure in VC/PE investment and management? Are our procedures and practices, valuation and assesment models, legal and deal structuring at par with world standards? The VC/PE scene in Malaysia is in its infancy. Sure we have one or two big government and government agency backed outfits, and also Financial Institution backed VC/PE outfits but that really does not ensure or guarantee anything much as far as competency and experience is concerned. At least not specifically with regards to the business of VC/PE.