As the COVID-19 pandemic takes a heavy toll on the global economy, Morgan Stanley Private Equity Asia (MSPEA) believes that the Asia-Pacific will outshine North America and Europe in both market liquidity and exit performance in 2020.
“Asia’s secular long-term growth over the past 25 years has been characterised by dramatic volatility. There were different events that were significant to the growth trajectory of Asia,” said Chin Chou, CEO of MSPEA and a Hong Kong-based managing director of Morgan Stanley, in an interview with DealStreetAsia.
Chou continued: “Given what we’ve lived through in the past, I think it ensures that the investments we make will always have some level of risk mitigation. In other words, Asian managers are more experienced in terms of managing through crises.”
His optimism on Asia comes as the region, where the novel coronavirus started, has fared better overall than North America and Europe since the first case was reported in the central Chinese city of Wuhan in December 2019.
At 10.8 million cases as of October 3, Asia takes up nearly one-third of global cases, compared with 15.3 per cent for Europe and 49 per cent for North America.
Countries like China, South Korea, Singapore, and to a lesser extent Japan, have effectively flattened the curve. China, in particular – where MSPEA earmarks about two-thirds of its capital and professionals – has recorded a largely two-digit daily growth of new COVID cases since March, while the country’s GDP rose 3.2 per cent in Q2 2020 from a year earlier.
Currently, MSPEA invests in China through its second RMB fund, which raised 2.9 billion yuan ($427 million) and started investing in 2016; and the $1.7-billion Asia Fund IV, an Asia-Pacific US dollar fund that is also 50-60 per cent focused on China. The firm also sources deals in India, Thailand, and South Korea.
“One of the reasons we like investing in China is because for almost every investment we have made, e-commerce aside, we’ve made the investment at a price below what we would pay for a similar business in the US,” said Chou, who leads the firm to primarily invest in consumer-oriented products and services in China. “Price is a big mitigant of risk.”
Established in 1993, MSPEA mainly invests in highly-structured minority investments and control buyouts in growth-oriented companies. As of June 2020, Morgan Stanley Investment Management had $665 billion in total assets under management (AUM), of which $17 billion were allocated to private credit & equity, per its website.
In Greater China, some of its portfolio companies include Hong Kong-based financial institution AMTD, Beijing-based baby formula firm China Feihe, fintech giant CreditEase, and women’s shoe retailer Belle International.
The firm also backed companies like non-banking finance firm Kogta Financial, education services provider Nspira, and food firm Southern Health Foods in India; and hire purchase loan provider Ratchthani Leasing, retail bank Thai Credit Retail Bank (TCRB), and assisted reproductive technology business SAFE Fertility Center in Thailand, as well as several other firms across Taiwan, South Korea, and Singapore.
Chou, who joined Morgan Stanley in 1987, has led MSPEA’s four private equity funds, including the $330 million MSGEM Fund (1999), the $525 million Asia Fund II (2005), the $1.5 billion Asia Fund III (2007), and the current $1.7 billion Asia Fund IV.
Chou also oversees MSPEA’s private equity business in China, where the firm had launched its debut 1.7-billion-yuan ($250 million) RMB fund in 2013 and the second 2.9-billion-yuan ($427 million) RMB fund in 2016.
The firm is in the market raising its fifth Asia PE fund and has so far secured $398.33 million for the new vehicle, according to its latest filing with the SEC in late September. Chou declined to comment on the fifth fund.
In Thailand, MSPEA had launched a $440-million country-focused fund in October 2018 and has deployed about 30 per cent of the fund to six deals.
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