Top Fund Exec Eyes Growth Potential in China and Southeast Asia27 March 2023
First-hand insights into the next growth areas and investment considerations.
Asia is an epicenter of growth despite existing headwinds. SS&C Intralinks recently met with Shaun Lim, managing director of HOPU-ARM Innovation Fund (HAIF), to discuss the current investment landscape in China and Southeast Asia (SEA). Lim shared his perspectives on key growth areas, macro considerations on HAIF’s exit strategy and teething issues when companies expand to SEA. Read highlights from the interview below or watch the full video interview here.
SS&C Intralinks: Tell us the about HOPU-ARM Innovation Fund (HAIF) and your investment strategy.
Shaun Lim: Established in 2017, the HOPU-ARM Innovation Fund (HAIF) was formed by HOPU Investment and ARM Technologies (ARM). HAIF is a private equity (PE) fund focusing on technology investment. Its investment strategy revolves around the ecosystem of ARM, one of the world’s leading global semiconductor platforms.
With our deep connection with ARM, HALF is well-positioned to leverage ARM’s advantages while looking for investment projects of great potential. At the same time, HALF provides an array of value-added services to the companies they have invested in, ultimately driving a better return for investors. HAIF mainly focuses on mid- and late-stage projects from Series B and above. HALF’s current investment project covers a wide spectrum of industries in the technology space, including AI, semiconductors, robotics and other application projects.
SS&C Intralinks: What was the key driving force for dealmaking in China in the past year?
Shaun Lim: There were considerable changes in the past 12 months. First and foremost, as a fund, we always go back to the fundamentals when evaluating a diversified range of projects. The market potential is the key. For instance, whether China is affected by the macro environment and the pandemic, its market potential is still enormous. Then, we will consider whether business of these projects will expand even more quickly in the short-term. However, because of the current environment, it is relatively difficult to achieve that since the overall global macroeconomic environment is in a comparatively lackluster state.
Secondly, many verifications of assets and capital were also brought about by the pandemic or loan scenarios. These will more or less affect their business. For companies with resilience, it will be easier for them to overcome this kind of difficult situation.
When evaluating an investment opportunity, we must ensure that the companies have sufficient cash on their balance sheet, or that their team can overcome these difficulties. Apart from having good returns, the nature of the project is also an important consideration, given that the entire capital market has pivoted.
Valuations have significantly declined this year from its high point in 2021. I reckon that the valuations of many listed or China-based concept companies have also plunged substantially, whether the locations of their operations are in China, Hong Kong or in the U.S.
For this reason, these headwinds will also impact how we assess investment opportunities. Wherever we invest in a project, we need an exit. It all comes down to creating better returns. The capital markets used to be a huge exit channel in the past. What about now? This channel is considered less viable compared to the past. So, what would we consider for our next exit? Should our valuation be pegged to the same level as last year or be adjusted given the macro environment has changed so much?
SS&C Intralinks: Among so many novel technologies, which sectors have the best market potential in your opinion?
Shaun Lim: It’s Deep Tech for sure. It's a strategically important area for China and its government regarding future development. The technology will gain much support from both the public and private sectors.
Like 10 years ago, the whole market was crazy about 4G, which had driven the uptake of the mobile internet globally. It’s like leaping from desktop applications to mobile internet, giving rise to many digital tech giants and large corporations such as Baidu, Alibaba and Tencent, or what we call BAT. As a result, we also witnessed a proliferation of novel business models such as online-to-offline (O2O), peer-to-peer (P2P) and so on. We will likely see a paradigm shift in the next 10 years, where 5G will accelerate and advance the application of artificial technology (AI), Internet of Things (IoT-enabled) and robotics.
At HALF, we see semiconductors as the building block. When combined with hardware, the semiconductor is essentially the underlying infrastructure of the entire technology industry. It’s just like economic development; we need trains, high-speed trains and so on for infrastructure. This explains why the semiconductor industry continues to receive considerable support globally, and why we are still quite optimistic about its market outlook.
SS&C Intralinks: The most frequently discussed topic in Southeast Asia is demographic dividends. Have some potentials in the region been overlooked?
Shaun Lim: The Southeast Asia region (SEA) consists of 10 unique countries with a population of 600 to 700 million. We see good market fundamentals in SEA too, since their population is relatively young, with an average age of 30, despite the differences in cultures, language and political systems.
Nevertheless, their overall mobile internet penetration remains on the rise. This trend is very similar to the growth phase that we saw in China for the past eight to 10 years, which was driven by the mobile internet. This is the most significant opportunity in the Southeast Asian region currently.
SS&C Intralinks: As you have mentioned earlier, the Southeast Asian market may also follow in the footsteps of China’s economic success. How can Chinese companies draw on these experiences to acquire competitive advantages in SEA?
Shaun Lim: I’ve had the privilege of spending lots of time in SEA, especially in Singapore, where I met many successful Chinese entrepreneurs considering expanding to Southeast Asia. As they are already highly successful players in the intensely competitive market in China, they are likely to leverage this experience to win the battle in SEA too.
Since many of them are internet or technology companies, they don’t need to start from ground zero. With deep technology expertise and a strong R&D team in China, they can directly break into these new SEA markets after making minor product adjustments. Coupled with entrepreneurial experience, the success chances of these entrepreneurs are considerably high.
Bronte specializes in the North Asia private equity market and is dedicated to addressing the needs of alternative investment managers, facilitating activities like M&A, co-investment, private placement, IPO and secondaries transactions among private equity, venture capital, real estate and private credit funds of all sizes, strategies and vintages across the region.
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