Asia’s deal-making Ong brothers


Brothers in business: RRJ Capital bosses Richard Ong (left) and his brother Charles in front of their office in Hong Kong.

BLACK Monday, the Black Friday mini crash in 1989, the 1997 Asian financial crisis and the 2008 subprime crisis. Asia’s deal-making Ong brothers have come a long way to becoming household names in private equity.

Malaysian brothers Richard and Charles Ong had somewhat similar career paths, rising to senior positions in giant firms before taking the leap of faith to set up their own investment firm RRJ Capital, based in Hong Kong and Singapore.

It turned out to be the right move after all, as RRJ has grown to become among Asia’s largest private equity groups with over US$12bil in capital under management, and it is expected to hit over US$15bil by next year.

Richard is chairman and CEO of the firm while his younger brother Charles is co-chairman and co-CEO.

StarBizweek had a chat with Richard and Charles when they were in Kuala Lumpur recently, after having completed their latest acquisition of global airline catering and on board retail provider Gategroup Holding AG.

They also indicated their interest to invest up to RM5bil in Malaysia, focusing on sectors such as insurance and infrastructures including water, transportation and logistics.

 

Who they are

From St John’s Institution to the Ivy League and Wall Street, the Ong brothers, who hail from Johor, had illustrious paths to where they are today.

Richard was a civil and environmental engineering graduate from Cornell University in 1986. He got his MBA from the University of Chicago three years later after he started working in Wall Street.

He had spent a year doing engineering in 1987 and soon felt that it was not his calling, which then led him to take up an MBA.

“I graduated on the Black Friday (1989). It was terrible. The market crashed but it was a good experience and a fantastic one working in Wall Street back then.

“We slugged off many long hours working in Wall Street and then, eventually had the chance to come back to Asia where I ended up in Hong Kong,” said Richard.

He began his career in finance at the then Chase Manhattan Bank and Prudential-Bache International and was in Goldman Sachs for over 15 years where he was based in Singapore and Beijing.

He was the investment bank’s Singapore president and a member of its Asian management committee.

“I’ve been working in the industry for a long time and in 2006, I was in Beijing for almost four years and then decided that it’s time for me to move on,” he said.

Richard co-founded Hopu Fund with fellow Goldman alumni Fang Fenglei in Beijing. It was a US$2.5bil private quity fund.

It was at Hopu that he became famous for his rapid-fire investment style. He left Beijing in 2010 to start RRJ in Hong Kong and Singapore.

As for Charles, he obtained his degree from the Massachusetts Institute of Technology (MIT) and then obtained his MBA from Harvard Business School.

He began working at Lazard Freres & Co in New York and relocated to Singapore in 1995 to help kick off its operations in Asia.

He then worked for Deutsche Bank from 1998 to 2002 before joining Singapore’s state investment firm Temasek Holdings for 10 years where he held senior positions such as senior managing director of special projects, chief investment officer and chief strategy officer.

He was also the CEO of Seatown Holdings International, Temasek’s global investment subsidiary.

“New York was where we started most of our careers. The United States was a place to learn and as time passes, you try to move back closer to Malaysia and we either landed in Hong Kong or Singapore. “One thing leads to another and it’s been an interesting experience for all of us. Like Richard, I also started in the banking business but I decided to go to the buy side in 2002.

“During that time, we had an opportunity to redefine Temasek and it was a journey to come out and transform the investment thesis and how you look at the world and to us, emerging markets particularly Asia was an area that people kind of left it as a graveyard, particularly post-1998. I think it was a fantastic time to invest,” said Charles.

Temasek seconded Charles to RRJ in 2011. He left in January the next year to be in RRJ permanently.

Charles is also on MIT’s board of trustees, the first Malaysian to sit on the board. His son is currently studying there as well while his daughter is a student at Stanford University.

One of Richard’s daughters, on the other hand, is a student at Yale University.

 

RRJ’s investments and investors

RRJ, which stands for the initials of Richard’s three daughters, focuses on growth capital and state-owned enterprises investments. It has investments in Europe, the United States, China, Singapore and Australia.

Sectors that it particularly prefer are insurance, healthcare, food, logistics and also real estate, but mainly residential in China.

“Of course the big ones for us as well is financial institutions. Our main focus lately has always been insurance.

“We own one of the largest insurance companies in Europe called NN Group NV, which historically used to be ING Insurance. We’re the largest shareholder with a stake of around 10%.

“We also invested close to US$700mil in a US insurance company called Voya Financial Inc. It used to be ING USA, We’ve also been involved in insurance companies in China like the famous Ping An and China Pacific Insurance,” he said.

As for hospitals, RRJ is involved directly and indirectly in over 30 hospitals in Australia and New Zealand and also some investments in Singapore.

On the logistics front, he said RRJ is very focused on China due to its growing economy.

Apart from NN Group NV, among other top investments by RRJ are a 100% stake in Gategroup with US$1.95bil invested, S$1.74bil in Cheniere Energy Inc, 9.85% in NN Group at US$1.69bil, US$1.18bil in Global Aviation, US$831mil in China Logistics Property Holding Co Ltd, US$704mil in Logan Property Holdings Ltd and US$587mil in Sinopec Marketing Co Ltd.

“We also own the largest privately-owned juice company in China that makes packaged juice to serve on airlines or bullet trains, which also makes us one of the biggest juice producers in China,” said Richard.

RRJ has raised three funds since its inception – RRJ 1 at around US$2.5bil, RRJ 2 at US$3.6bil and RRJ 3 at US$4.5bil.

About 55% of it’s investors are from the United States, 25% from Europe and the Middle East, and about 20% from Asia and these comprises state pension funds and corporates such as Boeing, Shell and Intel.

“Overall, we’re very focused on investing in what I call, the key bricks and mortar businesses in the world.

“We’ve raised funds of about US$12bil now and we’re raising another one which will bring us above US$15bil and coupled with the co-investors, effectively we will have over US$20bil.

“We also have no problems investing in the western world because we lived there for a long time so it’s natural for us. To sit on their boards is also never a big deal for us,” Richard said.

 

Investment philosophy

Having started their finance career in investment banking during the times of a stock market crash and then on to the 1997 economic crisis, that’s where the Ong brothers learnt a lot.

“It teaches you about investment, risks, risk control, managing currencies and exposures where there was a mismatch of currencies, borrowing short term versus long term.

“A lot of companies were caught because their assets are long term and yet they borrow short term. These are the fundamental things you will learn in the world of corporate finance but people practice it differently. That’s one of the issues we had in 1997,” said Richard.

“The technical skills part is easy. That you can learn in school or when you get your degree. We’ve made over 100 investments in our lives all over the world and we’ve done some good deals, some not so good deals to be honest. That’s part of life.

“One thing we do realise is, we’re not good in investing in small companies, we’re better in investing bigger companies and make them really big.

“We like to create what we call national champions in other words, the largest company in that country. We like to invest and create regional champions like the biggest company in Asean., or for that matter we like to invest in companies like Gategroup which is a global champion, so we always identify them and the main thing for us is their ability to grow from x to 3x in terms of size,” said Richard.

For RRJ ultimately, the main thing is going back to the very basic point – human relationship – actually dealing with people and the ability to interact and come up with a fair deal.

“If it’s a one sided deal, if you win and they lose, you’re not going to do a lot of deals in the long term.

“You have to do a deal where ultimately both sides end up in a win-win situation. Of course, some may win a bit more but at least it’s not one-sided.

“It’s important when you sit down and negotiate and work on deals, it’s really a relationship in trying to bring together some of the key elements of a deal,” he said.

But it does not end there as one has to deal with management after the deal and this is where it is important to have a relationship with all stakeholders like the government, employees and the management.

Unlike the Indian industrialist Ratan Tata who can own a business for a very long period, RRJ sticks to its roots of a private equity firm where it can only own a business for a certain amount of years, following which it has to exit, which is why it deems stakeholder relationship vital.

 

Billion-dollar success

With a small team of only 30 people in both Hong Kong and Singapore, RRJ has over US$12bil in capital under management and that figure is still growing.

The secret of it all? Trying to be like Warren Buffett in keeping things simple.

Richard said RRJ always try to keep things simple and looking at Buffett and his investments, they are all very simple, structured and makes perfect sense.

“A lot of people think this is rocket science. It’s not. Try to have a look at things a bit longer term and see how you can maximise the value of the company at the end of the day.

“There are all kinds of risks like a meltdown, global financial crisis, or a national risk like what Turkey is going through right now or industry risks like if you’re having a lot of Boeing 737 Max now, you’re in trouble.

“So we’re always thinking about risks as a part of our analysis and it’s an active, nimble monitoring all the time,” Richard said.

 

Interest in Malaysia

Richard revealed that RRJ is keen to park some of its funds in Malaysia, on the back of potential opportunities in long term investments given the new government. It is targeting about RM5bil of investments in Malaysia over the next few years.

Areas of focus include insurance, water infrastructure, transportation, logistics and food.

“We like infrastructure, long term infrastructure and it could be in the area of transportation, logistics or redevelopments for example the redevelopment of Subang Airport and the rapid transit system in Johor.

“We like to do it as a private finance initiative (PFI) or a public private partnership with the government because really at the end of the day, ultimately the assets belong to the government.

“So you do it either on built-operate-transfer or build-transfer-operate.

“We’re also quite keen in Malaysian insurance and we’re very focused on putting a significant amount of our capital,” said Richard.

He added that very few Malaysian companies have gone international as entrepreneurs are still very domestic.

While RRJ has no investments yet in Malaysia, Richard does have a personal stake of 5% in Alliance Bank.

He was one of the three individuals who bought into Langkah Bahagia Sdn Bhd from Lutfiah Ismail in April 2016, who is the single largest shareholder in the bank’s predecessor Alliance Financial Group with an effective stake of 15.04%. Lutfiah is known to be an associate of Tun Daim Zainuddin.

Langkah Bahagia owns 51% of Vertical Theme Sdn Bhd, which in turn, holds 29.06% of Alliance.

 

Prospects in Malaysia

Every government has its challenges, including Pakatan Harapan but having said that, Richard thinks the current administration is trying really hard.

“It’s not easy to turn things around. It’s like turning around a company. It’s never an easy thing and they do need like a lot of help from the private sector.

“The government alone can’t do the job. Like any country, job creation is always still the private sector.

“But the government with the right policies are able to help to drive the investments. And this has to go from top down. It’s no point just the top doing it and the grassroots they hold things back,” he said.

With competitions around the region such as Thailand, Indonesia, Vietnam and the Phillipines, he opined that Malaysia has to play to its strengths to be able to compete.

“They have the population. So we need to look at ourselves and ask, what are really our strengths? We can’t compete with them on population.

“So that’s where we have a great rule of law, language skills so we got to play the higher value right. We need to be competitive. The bureaucracy and the government needs to work hand in hand to make sure the right kind of investment comes into the country.

“Look at what China has done for the last 30 to 40 years. I mean they went from bicycling to now, amazing. They’re even ahead of us,” said Richard.

Charles said there is no reason why Malaysia, with a market of almost 32 million people, cannot compete with other countries in the region as Malaysians are fairly educated, the country has well built infrastructure and a very competitive cost base.

“We just have to put it in a better marketing position, get a few basic things, straighten and tighten it up a little bit.

“For us who are old enough to remember about Asian Tigers, it’s a term no longer used because we’re all being surpassed by China. But I think the global market is so big that you can find your own niche to do the right thing.“We need to find the right people, the right packages, do the execution and really define Malaysia, not only in terms of its own domestic market but rather in the regional capabilities if not global in certain niches.

He added that providing higher certainty for investors and making things easier and lesser friction are something that all investors look forward to.

In the long term, as long as a country has the right value system, the willingness to work hard and treasure the right things, Charles thinks that the economy will grow albeit in cycles.

“For us, it’s about finding great companies and bringing them to greater heights and finding talents we can work with. Malaysia is like any other market, lots of talents here,” Charles said.

“The government should also look into how to really value add. We’re a big agriculture country.

“Take palm oil for example, instead of just exporting raw palm oil, create by-products and turn it into higher value add. We export commodities but why don’t we try to look at ways that we can enhance the value add?”


   

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