Louis Vutton’s private equity firm, raised US$1 billion, to take emerging Asian brand global

English: LVMH Building (Berluti, FENDI, Louis ...

English: LVMH Building (Berluti, FENDI, Louis Vuitton) in Kobe, Hyogo prefecture, Japan 日本語: LVMH複合ビル (Berluti, FENDI, Louis Vuitton) 旧居留地, 兵庫県神戸市 (Photo credit: Wikipedia)

In a age of hot money leaving Asia, some funds continue to flow into the region. Private Equity International reports, A fast fundraise in Asia – or anywhere, you might argue – always grabs attention. But in the current ultra-cautious climate PE circles were abuzz this week over news that L Capital had closed an oversusbcribed, $950 million Asia fund, in roughly six months. L Capital is focused on investments in consumer goods companies in Asia with affordable branded products, not ‘luxury’ brands as many assume because of  its parent, Louis Vuitton Moët Hennessy (LVMH). Food, clothing and jewellery brands in China, India and Australia are some of the targets the firm has invested in as it works to build Asia’s future global brands. The fund’s sector focus has been highlighted by some industry sources as the main attraction for LPs. In Asia, most funds are generalist growth capital vehicles. Single sector funds such as cleantech or healthcare are typically sub-$1 billion and relatively rare. Therefore, a tightly-focused fund backed by a parent group (LVMH will invest 10 percent) with a prestigious brand were alluring. The LVMH brand has a mystique in Asia, one source added, which enhances the appeal of the fund in the same way funds find special success in China when they are led by a princeling (typically the child of a high-ranking party official). It all sounds reasonable. But in the current environment, with fundraising totals  in Asia down 30 percent in 2012 and many GPs struggling this year, it’s hard to believe investors would quickly commit based on corporate brand or a sector specialism alone. Particularly since L Capital has a short history: its Fund I, a 2009 vintage, has 13 investments and only 2 exits. Not only that, the retail sector is facing multiple threats. The imminent end of quantitative easing is already resulting in a pullback of some capital from emerging markets, which is linked to the plunging currencies in India and Indonesia. Warning shots have been fired through comparisons with the eroding currency levels during the 1997-98 Asian crisis. At the same time, retail is under pressure from the continued slowdown of GDP growth in India and China, which impacts other economies in Asia such as Australia. In a faltering macro environment, it may not be the best time to invest to build a brand. LPs are more discerning and meticulous than ever before, so they must have factored in the economic storm. The question remains, what was L Capital’s secret pull? It likely was, in two words, operational work, something PEI has long supported and will recognise in our soon-to-be-announced Operational Excellence Awards. According to sources, LPs had no track record to digest, but they liked the story about taking Asian brands global, something that by definition would require operational  intervention. So they went under the hood of Fund I to examine existing portfolio companies and quizzed their management and entrepreneurs first-hand about L Capital’s value creation work since investment. Judging by the fundraise, they liked what they saw. A firm with operational capabilities remains the exception rather than the rule in Asia, and should be well positioned in a slowing or troubled economy, when the opportunity to gain marketshare from less efficient competitors ripens. If L Capital does indeed have the right experts doing the right type of brand building, the work could go a long way. The operating team, according to the firm, has 10 retail industry professionals, including former top executives from Nike, Coach, Louis Vuitton, DFS and Swatch. Now add in the sector focus and LVMH cachet and LPs clamouring for access becomes more understandable. L Capital’s Fund II may indeed, as some suggest, mark a trend toward sector-focused funds in Asia. It’s too early to say. But it already provides strong indications that the key to a successful fundraise during a brewing storm is verifiable value creation. (Source)

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