The Asset Magazine

 

The sector-agnostic growth capital fund invests in high-growth private companies with strong local management and leading market positions in China, India, South Korea and other key Asian markets. The closing of CAGP IV reflects the improving investor sentiment towards China and India, as the two major economies start to stabilize and show signs of emerging from the economic downturn. 

 

Nearly 40% of CAGP IV’s limited partners are new investors, demonstrating the growing demand for exposure to China and India. They come from North America, Europe, the Middle East, Asia, and Central and South America. “The response from Asia was really encouraging and we saw a 40% increase in their capital commitment from our last fund,” says Wayne Tsou, managing director and head of Carlyle Asia Growth Partners.

 

Tsou says the fund, which was raised over a 14-month period from April 2008, is committing between US$50 million and US$75 million per investment with an explicit policy not to seek control of the companies. It will not use leverage, which makes it attractive to investors. He adds that Carlyle does not have an allocation policy as its philosophy is to let the money flow to the best deals.

 

Tsou is targeting to deploy CAGP IV in three to five years. “We will be highly selective,” he says. “Even though we’ve invested the last fund in only 2-1/2  years, we’ve put the money in less than 1% of all the companies we saw. We have set a high bar and maintain our discipline.” 

 

CAGP III made 22 investments across more than 10 sectors, including energy, consumer, technology, business services, education, industrial, healthcare, real estate and media, of which 80% were made in China and India. According to Tsou, most of its growth capital portfolio companies have achieved growth rates in the range of 20% to 50% despite the economic slowdown.

 

 

CAGP IV, which is more than 50% larger than its predecessor fund in terms of capital commitment, has already made its first investment in a leading Chinese high-end women’s fashion company, Ellassay. “The company has been experiencing double-digit growth consistently over the past 10 years or so, and boasts a high profit margin,” says Tsou. “We are going to help them scale up consistently in the next five years, so they become one of the leading international competitive brands in women’s clothing out of China.”

 

Tsou notes that the Chinese domestic consumption story is developing well. He says China’s strong economic performance, successful implementation of its stimulus plan and incentive measures for small and medium-size enterprises are attracting international firms and investors to the Chinese market.

 

On India, Carlyle believes that the country’s promising demographic fundamentals, mature capital markets and skilled workforce make it well-positioned for further growth. “The strong entrepreneurial culture in India has created many potential investment opportunities for Carlyle,” says Shankar Narayanan, managing director responsible for CAGP’s investments in India. “India’s emerging middle class is fuelling strong domestic consumption, while the outsourcing and re-engineering of various products and services from all over the world to India continues to grow at a lively pace.”

 

Tsou notes the deal flow in Asia started to pick up in the second quarter of this year, following a slowdown in activity during the six-month period ending March. “This is encouraging and this is in line with the revenue pick-up in a lot of our portfolio companies,” he says.

 

Explaining its philosophy of not seeking control when it invests in companies, Tsou says Carlyle focusses on creating value added to its investments, including helping the companies increase their revenue base by introducing them to new potential customers. In addition, it helps the companies improve their ‘internal health’ in areas ranging from financial control to corporate governance, sales and marketing systems. “People take our money because of the value-add that we put in their companies,” adds Tsou.