China may be a priority for most foreign firms, but not for private equity investor Navis Capital
Investment fund sees better opportunities in Southeast Asia
China, which is a must in the portfolio of every foreign investor, does not appear to be significantly high on the list for Asia-focused private equity investment fund Navis Capital Partners, who are instead focused on Southeast Asia.
“For China, I would call it a cherry-picking strategy,” said Nicholas Bloy, managing partner of private equity firm Navis Capital, which manages US$5 billion.
“In Southeast Asian region, we find that there are more opportunities. [The scope for] change of control is surprisingly high here.”
There was a boom in entrepreneurs after many Asian countries gained independence. Now they are well past the age of retirement. Besides, these entrepreneurs who sent their children overseas for education are reluctant to inherit or run the businesses.
This increases chances of buying out these companies, according to Bloy.
Navis Capital’s most recent investment was a majority stake in Mainland Poultry of New Zealand in May this year.
“We have the capabilities to support companies in China,” said Bloy.
“We are looking at manufacturing companies and later stage tech companies which are doing very interesting things in China, but that does not mean that we have been looking to do very many primary Chinese deals. Investing in purely Chinese companies is very dependent on the culture of these companies in my point of view.
“We will continue that cherry-picking strategy [in China],” said Bloy, who will speak at the three-day annual AVCJ Private Equity and Venture Forum in Hong Kong starting on November 14.
The fund is studying investment opportunities in a manufacturing business in Shenzhen, valued at about US$300 million.
But Southeast Asia is still a priority for the company.
“You have to know what you are good at and keep getting better at it. We want to keep doing what we’re doing but become more transformative in our thinking. It is a risk to go into a place where we may not be so knowledgeable,” said Bloy.
The company has made a total of 140 to 150 primary and follow-on transactions, of which 90 per cent have been sold on to trade buyers.
As of the end of the second quarter, Navis realised a gross internal rate of return of 21 per cent.