The ASEAN region will require $1 trillion in infrastructure investment by 2020, with the bulk of that coming from foreign capital, according to Kenny Kim, chief financial officer of CIMB Group in Malaysia, speaking at PEI’s Global Alternative Investment Forum in Tokyo.
“Domestic public markets in ASEAN just aren’t big enough to supply the capital,” Kim said, in his presentation on ASEAN as an investment opportunity.
Most of that investment will be required in Indonesia, he said. “Next time you think the traffic is bad in Tokyo, come to Jakarta and we’ll show you a real traffic jam.”
Kim spoke to the mainly Japanese investor audience, highlighting the changing face of ASEAN and citing several drivers for investment opportunities. Aside from infrastructure needs, the region is increasingly becoming urbanised and the rise of a young, educated consumer class has opened up domestic consumption opportunities.
In addition, the ASEAN, tariff-free common market is expected in 2015, creating expansion opportunities for SMEs. He said the ASEAN trade agreement will create the world’s fourth largest economy by 2017.
At the same time, many of Southeast Asia’s policy makers and business leaders learned to respect risk and manage more wisely after the Asian financial crisis of the late 1990s, he added.
“The Asian crisis [in 1998] resulted in more carefully-managed businesses and the net sales of many companies in the region grew through the Lehman crisis.”
In addition, countries in the region have relatively low debt to GDP ratios and the Philippines and Indonesia, for example, did not experience a recession during the global financial crisis.
The discussion centered around mitigating risk, something of high concern to Japanese LPs in the audience.
Regardless of the macroeconomic ups and downs and the cyclicality of investments and exits, fund manager selection was seen as key to managing risk.
“First we consider risk while other investors may begin by thinking about return,” said Seiji Murakata, portfolio investment group vice president at the Development Bank of Japan. The key is fund manager selection. “Who you choose as a GP results in different returns.”
Fund managers who managed their investments well through the global financial crisis have a strong advantage when attracting fresh capital.
Due to the ten year-plus commitments that private equity often requires, the biggest risk for Japanese investors who want to commit to overseas fund managers continues to be manager selection, said James Ahn, managing director of Clayton Dubilier & Rice.
“It comes down to fund manager selection,” Ahn said. “If you find a good manager, they will always find creative solutions [in the face of macroeconomic volatility].