Private equity is fast catching up as an alternative asset class and sources of private capital in Malaysia. Commerce International Merchant Bankers Bhd (CIMB) head of private equity, Darawati Hussain, spoke to StarBiz journalist Daljit Deshi on the outlook of private equities in Malaysia and the company's plans to make its prescence felt in the area. Excerpts of the interview.
STARBIZ: What are the company's immediate plans?
Darawati: We are looking at two things. Firstly, to build the brand franchise for the private equity unit of the CIMB Group as one of the top-tier fund managers in the country and in the region for institutionalised private equity business.
The group has allocated RM100mil of its shareholders funds for investments in private equity as it sees the tremendous potential in this asset class.
Secondly, our target is to double the division's (i.e. CIMB Private Equity) total funds under management to close to RM700mil by next year from between RM300mil and RM350mil currently, and eventually to RM1bil in the next few years.
It has been said that there is currently close to US$300bil worth of Islamic assets in Islamic financial institutions worldwide, and we believe at least 2% to 3% is likely to be allocated and invested in private equities.
We want to position ourselves so that CIMB can tap into some of these funds upon their entry into Malaysia and in the region.
StarBiz: What is the company's competitive strength compared with other players in the private equity business?
Darawati: The CIMB group, among other things, has a successful record of being at the forefront in implementing innovative ideas to meet the fundraising needs of its clients, which include public and private companies as well as individuals. This has contributed to CIMB being Malaysia's premier investment bank.
We are well positioned to leverage off the CIMB group network to access exclusive proprietary deals. As a domestic firm, we are more in tune with local nuances than larger players, which are trying to do local deals, yet operating out of Britain or Hong Kong.
We are also committed to introducing innovative fund products for our clients.
As a bank-backed private equity firm, we have financial stability; and core to our approach is engaging in disciplined and insightful investing, monitoring and exiting. We have three closed-end private funds at the moment and plan to add another one within the next few months. The investors for our funds are institutions and high net worth individuals.
StarBiz: Has CIMB Private Equity invested its funds abroad?
Darawati: Of the RM110mil managed under CIMB Muamalat Fund I (CMF I), 66% has been invested abroad as CMF I is an Islamic regional buy-out fund. For the CIMB Mezzanine and CIMB Private Equity funds, up to 30% has been allocated for cross border transaction within Asean.
The CMF I is the first Asian-based regional Islamic private equity fund and seeks to take control of leading companies in proven industries in the Asean region.
StarBiz: What is the outlook for the private equities market in Malaysia compared with other asset classes such as private debt securities (PDS)?
Darawati: What is clear is that there is a significant opportunity for private equity to grow as currently less than 1% of the total fund under management in Malaysia is invested in private equity. In more investment-savvy economies, at least 3% to 10% of the fund under management is exposed to private equity.
CalPERS (California Public Employees' Retirement Scheme), which is one of the most active institutional investors globally, has allocated 14% to private equity.
Malaysia has funds under management of more than RM250bil. At 3%, there is a potential for private equity allocation of up to RM7.5bil as institutional investors such as insurance companies and fund institutions become more aware of the benefits that private equity brings to a well-diversified portfolio.
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