Former BAML bankers step up Asia deal-making
When Bank of America-Merrill Lynch (BAML) turned its nose up at private equity (PE) in Asia, several former BAML bankers disagreed.
BAML didn't see private equity in the region as a core business, helping to clear the way for the spin-off of its private equity team in Asia with the creation of Hong Kong-based NewQuest Capital Partners, a US$400 million investment firm.
Darren Massara, NewQuest managing partner, set up the firm with several former BAML colleagues.
NewQuest, which officially opened for business early last year but has become a more aggressive dealmaker this year, targets the secondary private equity market in the region. It took over a portfolio of more than 20 private equity investments previously managed by the US bank.
Massara, former managing director of BAML's Hong Kong-based Asia private equity group, said the change provided a rare opportunity to do something unique.
'Being a specialist, being a niche player, and establishing our own platform has been pretty exciting for us,' said Massara, who also worked for International Finance Corp, part of the World Bank, and for the US government before he joined BAML.
BAML was created after Bank of America acquired Merrill Lynch at the height of the global financial crisis in 2008.
In recent years, the euro-zone debt crisis and a faltering US economic recovery has forced BAML to reduce staff and sell its non-core businesses.
'The most important thing we have learned [from Merrill Lynch] relates to the execution of our strategy,' said Massara. 'I know what it's like to be on the other side of the table from the people I am talking to. I know what it is like to be in their shoes. They want liquidity and they want it at fair value and I can sympathise with them.'
A weak performance by global financial markets in recent years has increased pressure on the primary private equity sector around the world, making it difficult for private equity investors when they try to exit their stakes, list a company or find a buyer.
But Massara said these problems created opportunities for specialist groups like NewQuest, which operate in the secondary market, and he expected to find more reasonably priced deals.
'If you look at the private equity market today in Asia, it's pretty crowded and competitive. It's very difficult to get good value in the primary private equity deal space,' said Massara. 'On [a] relative basis, there are fewer players who are looking at the direct secondary space,' he said, adding there were about 1,000 private equity deals across Asia in the secondary space where investors want to sell down their stakes.
NewQuest targets four kinds of sellers in the secondary private equity business, including commercial and investment banks such as BAML, which are debt holders of their investment portfolio and want to cash out.
The other three consist of hedge funds, corporates and private wealth management offices of rich families that usually hold their investments for up to five years.
Massara said the primary private equity market was active between 2006 and 2011, but more recently investors had started to focus on exiting deals rather than making new investments.