Hong Kong: JPMorgan Chase and Co. has earmarked $750 million (Rs2,993 crore) for private equity investment in Asia, hoping to take minority stakes in businesses in a region where full buyouts are notoriously difficult, but competition for deals has cooled amid the global market slowdown and credit crunch.
The Wall Street bank, hit less hard by the subprime mortgage meltdown than many of its peers, is looking to invest alongside its corporate and private equity clients in industries including consumer, retail, industrial, health care and resources.
“The markets have changed and we’ve started to move into a market where debt capital or equity capital is not as easy to come by as it was three months, six months ago,” Todd Marin, head of Asia (excluding Japan), investment banking, said in a phone interview. “So clearly, having this additional pocket to work alongside our clients is attractive.”
amie Dimon, JPMorgan Chase and Co.’s chairman and chief executive officer, wants to put more capital to work in Asia
JPMorgan has brought in Varun Bery and John Troy, co-founders of TVG Capital Partners Ltd, to head its Asia private equity push. TVG Capital, which invested in telecoms in China, Australia, South Korea and India, is being wound down.
The 10-member team will expand to 15 or 20 over the next 12-18 months, Marin added. Funding is entirely JPMorgan’s own and will not be opened up to third parties, he said. Asia had been a relative bright spot for deal-making in recent months, although more than $6 billion worth of initial public offerings in the region have been delayed or scrapped since the start of the year.
“There’s an emphasis starting from (CEO) Jamie Dimon on down to put more capital to work in this part of the world, and certainly this fund would be one way to do that,” Marin said. The new team will be the Asia arm of JPMorgan’s Private Equity Principal Investments business, which is led by Bob Case from New York, and will invest in companies looking to raise up to $100 million, Marin said.
By investing alongside its clients, JPMorgan hopes to avoid potential conflicts of interest that can arise when investment banks pursue the same deals as their clients.
JPMorgan spun off a private equity arm into a company now called CCMP Capital after buyout firms complained about banks encroaching on their turf.
Rivals Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc. are all active private equity investors.
“We’re not going to find ourselves in situations as others have, which is a different business model, of competing in auctions against clients, be they either corporates or sponsors,” Marin said, referring to private equity firms.
While buyout funds run by the likes of Blackstone Group Lp. and Carlyle Group are ratcheting up their investments in fast-growing India and China, Marin said competition for deals is not as vigorous as it was because valuations have fallen and hedge funds have retreated as rivals.
“The competition for assets is not what it was 12 months ago,” Marin said. “You’ve got an equity market that’s pricing assets more conservatively and you’ve got a less competitive acquisition market than you had 12 months ago. I think all private equity firms out here have been waiting for markets that are a little bit more favourable for them.”
The Morgan Stanley Capital International (MSCI) index of Asia stocks excluding Japan has fallen almost 20% from its 1 November all-time high.
Asian private equity funds under management rose 14% to $190.7 billion last year, according to Asian Venture Capital Journal, while private equity investments rose by one-third to $84.2 billion, the trade journal said.
JPMorgan has also invested in Asian private equity through its units One Equity Partners and Principal Investment Management.