As global and regional private equity funds raise larger-than-before Asia-focused mega vehicles, Morgan Stanley Private Equity Asia believes that the best opportunities in the region are generally found in the middle market.
With Southeast Asia yet to offer scale and a consistent stream of large-cap deals, it is understandable that the large pan-Asian and global players have generally approached this market on an opportunistic, rather than a dedicated basis, said Chin Chou, head of private equity investing in the Asia Pacific for Morgan Stanley Investment Management. He is also the CEO of Morgan Stanley Private Equity Asia.
Last week, Morgan Stanley announced that it has closed its North Haven Thai Private Equity and related funds at $440 million, exceeding the initial $300-million target. The fund was launched in partnership with Bangkok Bank, which is an LP as well as a co-GP for the fund. This is the inaugural Thai fund to be managed by Morgan Stanley.
“In the middle market, while a more attractive opportunity set persists, it is challenging for smaller, independent GPs to compete with the mega-cap players in the current regulatory and fundraising environment – especially those without a large financial institution behind them. We believe that our [Thai] fund will benefit from this confluence of macro factors within global private equity,” he told DEALSTREETASIA in an email interaction.
According to Chou, the fund hit its initial fundraising target in less than a year’s time and will focus on consumer spending-related sectors, including consumer products and services, food and beverage, healthcare, retail financial services and education.
With a five-year investment period, the typical ticket size for the 10-year Thai fund will range from $20 million to $50 million.
“We started to market the fund in late-2016, and by mid-2017, we had achieved our initial target. Around that time, it became evident that additional high-quality global investors were interested in gaining exposure to Southeast Asia, and in particular, the Thai market, and saw our fund as the right vehicle for this. So we felt it made sense to stay open for longer to get them through the process,” he said.
Although the Thai fund is considered a relatively new fund in the market, it has already made two investments to date, totaling around $40 million.
Last July, the fund invested in skincare products manufacturer and distributor Do Day Dream, which owns the Snail White brand in Thailand. The company went public last December and raised $130 million via its IPO.
Its other investment was in baby and adult diaper manufacturer DSG Southeast Asia, which was delisted this April and sold to Japanese hygiene products company Unicharm Corporation this September. The deal was said to be worth $530 million and is one of Unicharm’s largest overseas acquisitions.
Chou said the deal marks the first exit for the Thai fund and has locked “attractive returns” for LPs.
“We’re very happy with the start the fund has had, and are also seeing a healthy pipeline of new investments from here,” he said.
Morgan Stanley Private Equity Asia’s previous four private equity funds include the $330-million Morgan Stanley Private Equity Asia I in 1999, the $525-million Asia Fund II in 2005, the $1.5-billion Asia Fund III in 2007 and the current $1.7-billion Asia Fund IV. As of June 30, 2018, Morgan Stanley Investment Management has $474 billion in assets under management.
Based on a report by the Wall Street Journal, the firm is said to be sounding out LPs for a fifth Asia fund at $2 billion. Chou declined to comment on the fund.
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