SAVVY investor Brahmal Vasudevan makes his move yet again.
His private equity (PE) firm Creador Sdn Bhd recently closed its fourth fund at over US$500mil (RM2bil), making it one of the largest capital raised for a Malaysian-based PE firm.
Not bad considering Creador had to see 350 investors to raise US$130mil for its first fund, and only got 35 to commit back in 2011.
This latest feat was also achieved without any capital from Malaysia’s largest government linked funds such as the Employees Provident Fund, Retirement Fund Inc and Permodalan Nasional Bhd.
Even in Singapore, fund managers often receive anchor investments from its sovereign wealth funds GIC and Temasek.
The news gets better.
Brahmal has decided that he is going to commit up to RM1bil of those funds into Malaysia, with the first investment to be made over the next six months.
Creador’s deployment of funds into Malaysia is indeed good news no matter how you look at it.
So far, the country has been plagued with headlines of high debt levels and missing goods and services tax refunds.
For this latest round of fund raising, Creador started the capital raised in March, meaning that the fund got RM2bil in under five months.
The vast majority of the investors were existing investors from the US and Europe with Malaysian investors accounting for less than 10% of the fund capital.
“We got money from universities, pension funds and family-based offices. Our investor base is very institutional based,” says Brahmal, who is CEO and founder of Creador.
Thus along with these new funds, Creador now has a total of RM5.6bil under management.
“We are delighted to have received tremendous expression of interest from a range of investors globally. Malaysia has been the most important market for us to date from a capital deployment perspective and we are actively looking for passionate entrepreneurs who are seeking to build world-class companies out of Malaysia,” says Brahmal.
Creador has a preference to own minority stakes allowing high quality entrepreneurs to keep control of their business. Aside from capital, its internal consulting team, Creador +, headed by senior managing director Kevin Loh, works alongside its portfolio companies to seek new growth strategies.
With this latest capital raise, Creador plans to invest RM1bil over the next three years in Malaysia, having invested RM1.36bil since 2012 in ten Malaysian companies including Old Town White Coffee Bhd, Mr DIY, CTOS, Bake with Yen, GHL Systems Bhd , Bonia Corp Bhd and Big Pharmacy.
Creador’s strategy is to seek investments in consumer businesses with rapid growth potential with outstanding entrepreneurs.
“We have a sharp focus on businesses that either provide an innovative way of doing things or those who provide cheaper, value for money that benefits the Malaysian consumer such as Big pharmacy, Mr DIY and Bake with Yen,” says Brahmal.
Creador’s best investments where it has netted returns of some 5x would be non banking financial company Cholamandalam Investment & Finance Company Limited (CIFCL) and Indian tile maker Somany Ceramics.
Creador first took a 5% stake in CIFCL in March 2012 for US$21.3mil through Creador I, before exiting in a few rounds in 2015 and 2016.
Meanwhile, Creador bought into Somany Ceramics back in 2014, and fully exited its investment in the Indian tile maker last year for US$50.4mil, with a 5.3 times multiple return.
For each investment which gives Creador returns of over 5x, Brahmal creates a trophy of the company, with the face of the CEO carved out.
Brahmal presently has two of these trophies. He hopes to increase this collection to over ten the next decade.
On the lookout for new investments
In case you are thinking of peddling your business or investment idea to Creador, here are some basic guidelines.
In Malaysia, Brahmal is currently looking at the consumer sector, business services and the waste management sector.
An example of a business under the business services category would be Creador’s RM215mil investment in credit information provider CTOS Data System Bhd back in 2014.
Roughly, the check size per investment would be RM100mil. In the past, Creador’s smallest investment has been roughly RM50mil, while the largest, RM500mil.
Brahmal is looking for entrepreneurs that have the hunger and aim to triple their size over the next 5 years.
“We don’t have to control a company to deliver outsize returns. Our approach is more collaborative. We look to have a dialogue with our entrepreneurs to understand their strengths and aspirations and to help them realise their full potential. This model has been perfected over 100 deals across India and South-East Asia (SEA) over the last 20 years,” he says.
“The entrepreneur must have a good track record and high integrity. There are many entrepreneurs out there, and we rather support them, than have control, and take away their company from them,” he says.
Since its inception seven years ago, Creador has tended to avoid industries which rely on government businesses.
Brahmal attributes this to his origins in investing in India.
“People say that entrepreneurs in China succeed because of its government while in India, they succeed despite the government. We need to stimulate the entrepreneurial eco-system to develop world class companies without the need for the government to be supporting you in each step.
As John F. Kennedy once said: “Ask not what your country can do for you – ask what you can do for your country.”
“In all our investments, we look for entrepreneurs who are committed to developing large (often regional) businesses through innovative products and clever marketing strategies and not with concessions,” he says.
Meanwhile since it started, Creador has been returning net returns of between 18% and 19% per annum.
That’s not too bad considering that most PE firms in SEA deliver net returns of under 10%.
In recent years, the SEA market has become increasingly unattractive for global PE managers, due to its poor returns. PE firms in the West can averagely return some 12% to 13%, hence making it less compelling for them to venture to Asia unless returns are closer to 20%.
Creador’s present geographical investment mix is 35% Malaysia, 30% in India, 10% in Vietnam and 25% in Indonesia.
Brahmal says that in general, Creador invests in one out of every 90 companies it meets.
On his observation of Malaysian entrepreneurs, Brahmal feels that they generally do not take as much risk as the entrepreneurs in China and India.
“In China and India, the entrepreneurs really think big. Malaysian entrepreneurs are generally more conservative. They don’t want to expand their businesses, but they also don’t want to sell. They are comfortable with their small dividends. They can also be averse to hiring professionals as they want to keep the business in the family. I think we have got to change that mindset and start to think bigger,” says Brahmal.
On the new Malaysia, Brahmal is positive.
He is proud to be a Malaysian and will continue to make contributions via his investments and the job creations as a result of his investments and expansion.
He concedes that Malaysia’s fiscal issues are taking time to solve, but that is understandable as many new ministers are getting a handle on the issues in their areas and need time to develop new action plans. However, it is a new dawn, and the new government has saved Malaysia from falling off further the financial cliff.
“All the government needs to do is to provide the right macro policy. We must learn to depend less on the government, depend less on concessions to survive. I feel it is alright for the government to take a step back and let the entrepreneurs and private sector step up.”
“The government should not feel compelled to spoonfeed the entrepreneurs. Our entrepreneurs need to go out there and figure out what the consumers actually want and fulfil that need. They should become less reliant on what the government wants,” he says.