Equity funds sprout in Indonesia
Following the success of Northstar Pacific Partners, the Indonesian private equity firm that raised $820 million in October, a group of wealthy Indonesian investors have teamed up with senior investment banker C. Christopher Holm to launch a $1 billion private equity fund for the country.
Holm is the managing director of Asia Financial Institutions, Bank of America Merrill Lynch, and works on mergers and acquisition deals in Asia. Details around the new firm remain sketchy, but Holm said he would release full information later this week.
Indonesia has attracted a number of large global private equity funds in the past two years given its strong economic growth and rich natural resources. Apart from locally based private equity firms, the UK-based CVC Capital Partners and US private equity firm the Carlyle Group have both made significant investments in the country.
“After a period during which investors have deployed substantial amounts to both China and India, Indonesia represents an emerging magnet, especially given the size of its economy and its position in the Southeast Asian economy as well as its assets and resources,” said Kathleen Ng, managing director at the Center for Asia Private Equity Research in Hong Kong.
The new fund is expected to invest in the country’s natural resources, financial services and infrastructure sectors, which have been the core of the country’s robust economic growth.
When asked if the fund would target green field projects or invest in existing assets, Holm said he preferred established assets of some size.
“We are open-minded. We will certainly look at development projects, whether they be infrastructure efforts — road, trains, airports and other such projects,” he said. “We will also evaluate various mining and related opportunities. This could be the purchase of the core land or helping support in the extract, refinement or transportation process.”
With such a large fund, he added that it would be highly inefficient for it to spend its time on small projects or companies.
“I think realistically, we need to put a minimum of $30 million to $40 million of equity capital to work in a venture,” Holm explained. “If not we are trying to oversee so many investments that we do an injustice to our portfolio companies.”
The objective is not to operate the companies the fund invests in but to provide proper oversight.
“Our prime target area will be closer to $100 million, and assuming we use some financial leverage and take less than a 100 percent stake, assets worth up to $1 billion or so are within the scope of evaluation for us.”
Industry experts said such a large fund will not be easy to raise within Indonesia alone and that many wealthy Indonesian business families are not known to work with private equity firms. Furthermore, getting deals or acquiring assets of the size Holm and his partners are contemplating will be challenging.
If raised, the fund will be one of the largest non-government affiliated vehicles of its type ever in the region and will underscore Indonesia’s growing attractiveness as an investment destination.
Holm added that the new fund would set aside 10 percent of its profits for social causes “as long as our business remains in existence.”
“Our financial goal is to invest $25 million in social giving in the first five years of our operations,” he added. “We think if deployed right, we can make a big difference.”
Among the causes it would support include children and education, health care initiatives and promotion of local arts.
“We are open-minded on other areas, but these are areas of special interest,” he noted.