This week’s OnFrontiers #ExpertChat asked three leading experts to identify the next big thing for private equity in Asia. Here’s what they told us.
Vinit Bhatia, who heads Bain & Co.’s Private Equity Practice for Asia-Pacific and co-heads its Performance Improvement Practice:
We haven’t seen a huge impact yet from President Trump’s first year. That being said, people are starting to ask questions about anything related to exports. If there are tariffs placed on products coming into the US, what does that do to the economics? There’s the negative side – the downside risk assessment – but there’s also the upside. We’re starting to see early discussions on more interesting higher-end machinery – robotics. The reality is that companies that are going to re-shore or set up shop in the US are going to find ways to do that with a minimal amount of labor. And that means there’s going to be opportunities for higher-end machinery and robotics, so I think that’s an interesting play if you take a view that this potential trend of increased tariffs or trade barriers is going to run through an investment cycle.
In China, meanwhile, what’s interesting is that since the government put a bit of a clampdown on capital flows outbound for corporates, it essentially created an opportunity for private equity funds to do more cross-border deals. In fact, in 2016 we saw a huge acceleration in cross-border deals, up from $17 billion in 2015 to $48 billion in 2016. What’s even more interesting is what drove all of that – i.e. the number of billion-dollar-plus deals. We’re seeing a huge surge, not just in capital flows but in these very large cross-border deals. Our data isn’t complete yet for 2017, but we see that trend continuing.
Xavier Xie, Managing Partner of Cross Continental Venture Partners, which exports innovation from the US into China, and the former founder of TVM China fund, an extension of a 35 year-old life-science fund with over 90 successful exits including 60 IPOs in the health sector:
One of the most successful deals I have done so far is related to so-called botanical drugs. These essentially are compounds derived from natural plants rather than chemical synthesis. Among all of the thousands of INDs, or Investigational New Drug applications to the US Food & Drug Administration, only two botanical drugs have been approved, including ours – from a Taiwan-based company that runs clinical trials in the US.
Now is the right time to invest this sector. Since the beginning of last year, the Chinese counterpart to the US FDA has undergone a very fundamental reform to accelerate the drug approval process. Before this, there were over 5,000 INDs left on file without being reviewed. The Chinese healthcare market is growing rapidly as the world’s second largest, and in five years it may be the largest. Domestic, indigenous innovation isn’t sufficient to meet the need for upgraded healthcare standards, so there are enormous opportunities for cross-border transactions to facilitate technology transfer. Ever since the 12th five-year plan, China’s central government has been actively promoting the so-called monetization of traditional Chinese medicine. This is in the same category as botanical drugs in the US FDA setting.
Vineet Chadha of Tata Capital Innovations Fund, which specializes in exporting innovation from India into the US:
My worst investment has been in a manufacturing company which developed a new product. Ironically, when we made the investment, we thought we’d timed it just right, because it was just when the regulatory framework was opening up for the product in India. This was only four years ago but now, four years down the line, the macro-economic environment has changed and the market is moving to new platforms. So, the tech industry moves at a very fast pace. Four years in this segment is a long time.
One of my best investments has been in the cancer diagnostics space. The company’s value proposition is that they are able to predict which cancer therapy will work best on a given patient – so it’s personalized cancer treatment. Unlike the gene-based tests that are commonly used, what this company does is essentially mimic the human. So, instead of the doctor running chemo on the patient, he tries it on an external lab plate, and the correlation is very, very high. They rolled it out in India and now have moved to the US.