Investment Funds Size Up Post-Crisis Cambodia

Though the onset of the global financial crisis in 2008 scuttled plans for private equity funds targeting a total of $475 million, several firms have now raised the possibility of launching this year as the economy continues to recover.

At least two funds are already raising money for a combined target of $170 million for Cambodian and Lao ventures.

Firms say that investors retain only some of the risk aversion that diverted them away from new projects in 2008, as the global economic crisis shook world markets. Even as some firms wait to gauge the smoothness of the upcoming stock market, large investments are rare in Cambodia, and finding companies with investment potential and good governance can be a challenge.

The year “2008 was a complete disaster to be fundraising, be­cause the world economy was melting down every month and that was the time we were out there. 2009 and ’10 got progressively better, but the scar of the global financial crisis has not been healed completely,” said Douglas Clayton, CEO of Leo­pard Capital, which launched the only fund to survive 2008 in Cambodia. Leopard plans to launch a $50 million fund later this year.

“There will be more people wishing to do funds, but whether world investors will seek that in­vestment is up to the ability of each fund to sell their story.”

Even while he is optimistic about Leopard’s prospects, he said the second $50 million fund has less lofty expectations than in early 2008 when Leopard aimed for $100 million. The first fund raised just over $32 million, which has gone towards several ventures including a brewery, a share in Acleda Bank, a seafood processing plant and real estate.

“We’ve learned there aren’t as many big deals in Cambodia as there are small deals,” he said.

Two firms said they expected a better environment for fund raising but that their plans would rest partly on the development of the stock market, which could launch in July.

Brad Gordon, managing director of Emerald Capital, which scraped plans for a $100 million fund in 2008, said that in recent months his seed investors had expressed interest in launching a fund possibly in 2011 that would target agriculture.

“To some extent they are waiting to see what happens with the stock market here in Cambodia,” he said.

Investors are interested in both the exit options of the stock market and its ability to raise money for investment ventures.

But years of delays for the stock market launch will inspire skepticism in investors, he said, adding that fund raising will be easier when the bourse takes off.

“When you go out to talk to investors one thing they are very eager to talk about is the stock market,” he said. “I’d like to see how it gets off the ground.”

In the mean time, he is researching several potential investments that will be part of his pitch to investors.

Morten Kvammen of Cambodia Capital said his firm has focused on corporate finance and becoming a stock brokerage after not following through with plans to launch a fund in 2008.

He said his firm is interested in launching a fund, possibly in the first half of the year but finding good investments that can be prepared for initial public offerings is a factor. Fund raising is another issue.

“If there is the interest in the Cambodia market, it’s very possible it could happen this year,” he said.

Still, though the stock market is lauded as possibility for raising governance standards for companies in Cambodia, where many companies are still family-owned and run, its unclear how many companies will take that step.

Stephen Higgins, CEO of ANZ Royal Bank, said there was no doubt about opportunities in Cambodia but finding investments with adequate transparency, proper auditing and governance is a challenge in Cambodia.

“Particularly if it’s western money, they will have expectations on the levels of governance in the underlying investments,” he said. “To date people have struggled to find the right investments with the right governance standards.”

Bretton Sciaroni, chairman of the International Business Chamber, said he anticipated more private equity funds opening up as many traditional investments in developed countries appear more risky to some investors. Frontier markets like Cambodia are more capable of supplying larger profits due to more room for growth in the economy.

“The point is that people always see the opportunity here. I think what held people back is that they got very cautious after the international economy crisis,” he said, adding that “there is a lot of money out there.”

Still, the large international fund managers he has met typically want large investments, including ones valued at $100 million or more and Cambodia offers few of those.

He predicted that mostly smaller funds will enter the market in the short term with some attention from regional funds.

“All of these funds they are not huge funds but they are like the precursors to the larger investors from private equity,” he said. “They will pave the way, to later more substantial private equity.”

The World Bank estimates that capital inflows for projects approved by Cambodia’s investment board reached $632 million, 22 percent more than in 2009. And while 2011 is supposed to be a better year, at least two other firms have begun raising funds in 2009 and 2010.

Frontier Investment & Development Partners, which had plans for a $50 million in 2008, delayed launching when its anchor investor, a private bank, pulled out, said Frontier CFA Marvin Yeo.

But since Frontier started anew in the second quarter of 2009 with a target of $150 million for agriculture, natural resources and infrastructure ventures. It plans on a first closing of $50 million this quarter for its Cambodia and Laos fund.

“Yes the fundraising environment is much better today,” Yeo wrote in an e-mail.

And Emerging Markets Investments, which launched in early 2010, is in the process of raising $20 million and plans to close this year, said managing director Joshua Morris, adding that the fund raising environment was improving as investors begin to look towards countries like Cambodia.

“I think the market has improved, I think investors are looking for new location to invest,” he said.


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