THE poster sitting aptly in Dymon Asia Private Equity’s (DAPE) boardroom brightly reads Shine Bright Like A Dymon, taking a leaf from Rihanna’s award winning hit Diamonds with its evocative and hypnotic line “Shine bright like a diamond”.
Diamonds went on to be nominated 13 different times and won several awards, including Top R&B Song for 2013. Unlike Rihanna’s previous hits, Diamonds sounded softer, with a more moderate tempo and laidback vibe – yet the formula worked, and critics felt Rihanna had made a breakthrough.
The beaming tagline isn’t exactly over the top in describing DAPE, not when DAPE Fund I achieved a net internal rate of return (IRR) of 30% from its 2012 inception to December 2017. DAPE Fund I, a S$300mil fund, was able to exit three of its 12 investments thus far, with the distributions from these three exits returninng the entire capital they have drawn from investors.
Following the encouraging success of Fund I, Dymon Asia announced earlier this week the final close of Dymon Asia Private Equity Fund II (DAPE II), a US$450mil fund focusing on small and medium enterprises in South-East Asia.
Demand from existing and new investors was strong, and the fund was oversubscribed and closed at its hard cap of US$450mil within several months of its launch in the fourth quarter of 2017.
“We are excited to be able to continue with our strategy to invest in small and medium sized companies in South-East Asia, where we believe there are many uncut diamonds”, says Keith Tan, one of DAPE’s three partners.
He adds: “Our partnerships with entrepreneurs and management teams have been very successful so far. We’re delighted that our investors and partners have done well with us. We’re also proud to have found world-class strategic buyers for our companies, who will be strong partners in their journeys ahead.”
DAPE has grown from a small team in Singapore when it first started, to having regional offices in Singapore, Kuala Lumpur and Bangkok.
“We believe in an engaged and committed approach, where we only invest if it is clear that we have specific execution roles in our investment thesis and can make a meaningful difference to our companies,” says DAPE’s other partner Tan Chow Yin.
“We discuss our involvement well before we invest so that we are all aligned on our joint goals, and our partners are clear on our roles in their transformation. Our ability to add value is the key reason for management teams and entrepreneurs to partner us. Of the 12 companies we invested in, seven have more cash than debt, indicating they were looking for more than capital alone.”
Chow Yin adds that the DAPE team has worked directly on technology implementation projects, succession planning and management incentivisation, mergers and acquisitions for industry consolidation, regional expansion, brand building and company restructuring initiatives.
Chow Yin says they will always insist on board seats in the companies they invest, even for listed companies.
“We are very grateful to our existing investors for their trust in us. In fact, many of our existing investors have industry experience, and have helped us with more than money – they have proven invaluable in providing proprietary deal introductions, channel checks and business opportunities for our portfolio companies,” says Gerald Chiu, partner at DAPE.
Chiu adds that they were very happy to welcome new investors for Fund II.
“We now have a much larger contingent of international institutional investors, including sovereign institutions, insurance companies and banks, multi-generational family offices and professional asset managers.
“We believe these investors will further widen our network to the benefit of our portfolio companies and bring tangible benefits to our businesses,” says Gerald.
StarBizWeek caught up with Chow Yin and asked him several questions on DAPE’s upcoming plans:
You launched your second fund in December 2017 and closed it under five months. It was oversubscribed, and you raised US$450mil. Why are investors so optimistic this round?
For the returning investors, I think we have earned their trust by working hard and delivering a strong return and a high distributions to paid-in multiple. For the new investors, many of them have invested in South-East Asia in the past and they liked our team and the strategy that we are applying to this niche and immature market.
There are quite a few private equity firms and more are being formed. In terms of returns, where do you stand among your peers?
We believe investors do not need to invest in any specific region or strategy. Hence, we tend to benchmark ourselves against global peers, rather than just South-East Asian players.
According to the data we sighted from Cambridge Associates, our December 2017 performance puts us in the top quartile of similar vintage PE Funds globally.
Who are the new institutional or sovereign investors in Fund II? Are you able to name some of them? What percentage do they make up in Fund II?
We are fortunate to have been able to secure a good mix of investors from around the world, including North Asia, Europe, Australia, North America, and of course, from South-East Asia as well.
Institutions and family offices now makes up more than 80% of our investors. It has been intense, and we are just glad to be re-focusing back on investing and portfolio management now.
How many professional staff does DAPE have? Do you plan to scale the team over the next 12 months?
The core DAPE investment committee and team comprise 14 people. In addition to that, we draw upon another 14 staff in shared resources with the Dymon Asia platform. Over the next 12 months, I expect the core team to grow to about 20 professionals.
When are you looking to make your first investment for Fund 2? Are you already eyeing some companies?
We are always keeping an eye out on companies we admire and like. We hope to announce at least a couple of investments by the middle of this year.
Typically, do you have a targeted deadline when all that monies should be invested? What is the targeted return for investors? (3x in five years?) or do you look to exit sooner?
Our investment thesis is typically charted out across a five-year period. We seek to double or triple our investment within three to five years. If objectives are well executed and ahead of plan, we will seek to monetise earlier.
You said you exited from three investments in your first fund recently and “the distributions from these three investments alone have already returned the capital we have drawn from investors”. Do you mean that you have made S$300mil from these investments?
The first fund is indeed S$300mil. However, we have not drawn the full amount as we have reserved some for follow-on acquisitions and contingent earn-out payments. For the amounts we have drawn, we have indeed been able to return them to our investors.
For Fund II, will you continue to invest in the same sectors as the first fund? Previously, DAPE was investing in the consumer related sector. Will that remain or are there new sectors?
The focus is on small and medium sized companies in South-East Asia – primarily in the markets where we have local presence – Singapore, Malaysia and Thailand. The sectors are not very different.
However, we will have to factor in valuations which can fluctuate from time to time. The oil and gas sector, for example, was over-valued a few years ago and seems more interesting now.
We are activist investors – we pursue opportunities where we can make a difference, not deals where the thesis is only to on-sell to the next buyer willing to pay more.
I understand that when you invest, you insist on board seat(s). How often do you engage with the entrepreneur or management of the company?
We want to become business partners, not passive investors. Like any good partnership – each partner should be concerned about his or her own deliverables. My partners and I have a great relationship where we each have our own roles and responsibilities, yet we will actively seek out each other’s opinions before we make a critical decision.
We do the same with our entrepreneurs and management. It is not how often we engage, rather how we engage.
I understand that when you choose to invest in your companies, the company must be able to yield a strong return on capital and have some distinctive intellectual property among others. Those reasons aside, why do you invest in the company? You said it’s only when you can play a role. Is it because the company cannot accelerate the business as fast, they don’t have a big enough vision, or the company is undervalued?
You remembered our discussion from last year! We seek to invest in unique companies – and with driven entrepreneurs. Businesses and challenges are so complex and evolving so quickly today that no one team or person can hope to achieve or maintain leadership status by working alone. We tell our team to spend a lot of time listening to our entrepreneurs before we invest with them.
Every entrepreneur that I respect has the humility to know that they can do even better if they bring in a good partner. Successful people are not afraid to share their problems, and they will quickly see through if you are listening or not.
You now own 13% of SPRITZER BHD. It’s a stable company with rather unsexy earnings growth. What did you see in them? What are your aspirations and plans for this company?
There’s a lot to like about Spritzer, to me. There’s hardly any liquidity when you look at the daily traded volume so it’s hard to read too much into its traded price. When we spoke to the company, we quickly realised that it fits many of the criteria that we look out for. It has real tangible assets, and a brand that Malaysians are very proud of, with an industry-leading market share.
When we listened closer, we started to see that we can add real value. The issues and challenges they are facing now are areas where we have some experience dealing with. It is a competitive industry and some of these challenges require real long-term transformation – which perhaps the market does not have the patience for.