Malaysian investment bank CIMB Group aims to launch larger private equity funds, a area that has proved very profitable for the group, once its $250 million (RM 923 million) South-East Asian Strategic Assets Fund (Seasaf) has been substantially invested.
The fund, which it set up and launched with South Africa’s Standard Bank yesterday, is expected to make an internal rate of return of 20% over its 10-year tenure.
The private equity business is a very profitable one for CIMB, apart from having tremendous growth potential, chief executive officer Datuk Nazir Razak told reporters after the launch.
“The private equity segment of financial markets is very important, but yet very untapped in Malaysia,” he said, adding that it was difficult to find sponsors to raise the funds.
“People are not so familiar with the turf and, also, the gestation period is long. Typically, investors would have to lock in their money for between five and 10 years,” Razak said. “But so far, from our experience, it’s an extremely profitable segment because you’re investing in the initial fast-growth phase of companies,” he added.
Second Finance Minister Tan Sri Nor Mohamed Yakcop, who officiated at the launch, said private equity funds – commonly referred to in the Malaysian context as venture capital – is becoming increasingly important as a source of funding.
This is particularly so for newer and high-risk industries which are the new drivers of economic growth.
The government remains the largest source of venture capital funds, accounting for almost 40% of funds under management.
“A major challenge, therefore, is to encourage more institutional funds … such as pension and provident funds, to allocate more of their available funds for venture capital investment,” he said.
Seasaf, to which the Employees Provident Fund (EPF) has committed $50 million (RM 185 million), is currently sized at $100 million (RM 369 million). It will increase to $250 million in the next 18 months.
Standard Bank, Africa’s largest financial services group and one of the world’s leading emerging markets banks, has committed $20 million (RM 74 million).
Seasaf will start with investments in infrastructure projects in Malaysia and the energy sector in Indonesia, said Nazir. He aims to have at least 60% of the fund invested in Malaysia and Indonesia.