By Sid Dastidar
The Center on Japanese Economy and Business treated an audience comprising Columbia MBA students and industry professionals to an insightful talk by Sir Deryck Maughan, Chairman of KKR Asia and former Chairman of Citigroup International. The event was held on February 13 in the theater at Casa Italiana. After briefly indicating how private equity is becoming an increasingly important financing source and outlining KKR’s business philosophy, Sir Deryck focused his talk on the opportunities in China and Japan. His talk underlined the cultural differences between Asia and the western world as they impact business, while emphasizing that Asia needed to be viewed as a series of heterogeneous individual markets.
On China, he noted that while the U.S. and China may end up confronting and competing on various economic and social dimensions, the chances of this snowballing into a major political battle appear low. With some rough patches, he felt that the risk-reward tradeoff would continue to favor the early investor and the entrepreneur, and portrayed China as a portfolio of attractive options at reasonable prices, with investment opportunities in both state-owned enterprises and private firms.
Japan is a very large potential restructuring opportunity, but needs to be approached with patience and an understanding of the culture. The fundamental forces of a declining population, a shrinking domestic market and increasing global competition had been generally accepted. But there is resistance to foreign investors and a fear of loss of control. KKR is positioned as a long-term partner, quite willing to work closely with local investors and in the right circumstances to assume a minority position.
Asia’s new role in the metamorphosis of the global economy is obvious. The commoditization of capital has prompted KKR to position itself in Asia as a value-added partner, with global reach, industry expertise, a focus on operational improvement and a long-term holding period.
The audience raised many questions, to which the speaker responded with candor and thoughtfulness. These ranged from the regulations facing private equity, to specific questions regarding KKR’s investment horizon in these countries and the role of local investment companies, and the possible demand-supply imbalance of capital in Asia.
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