CVC Struggles With ’Terrible’ Results In Asia

By VCC Staff

  • 16 Dec 2011

When CVC raised a $4.12b Asian buy-out fund in 2008, Marc St John, its head of investor relations, referred to the private equity group’s record in the region when he said investors “like what they see”.

A few years and a financial crisis later, investors are no longer happy about what they see from a private equity group seen as a profitmaking machine. “Their second Asian fund is very disappointing,” one says.

While its first Asian fund more than tripled its capital, the $1.975b successor fund has had what a person familiar with CVC describes as a “terrible” performance. This was triggered by a number of high-profile failures, the most recent one being the television network Nine Entertainment, which was written down close to zero.


Performance data of the buy-out group’s funds, obtained by the Financial Times, show that CVC Asia Pacific’s returns stand in sharp contrast to stellar profits of its parent company CVC Capital Partners in Europe.

While CVC’s fourth European fund, raised in 2005 with €6b in capital, had a valuation of almost 1.6 times the original cost at the end of September, the second Asian fund that was raised in the same year with $1.975m in size has so far lost 10 per cent of its investment value.

This Asian fund has invested $1.78b, realised $543m from disposals, reported $220m in other income and is valuing the remaining portfolio at $836m. CVC is aiming to give investors all their money back in the end.


By sharp contrast, the European fund of the same “vintage” year has invested €5.1b, sold companies worth €3.4b and valued the existing portfolio at €4.5b at the end of September.

Its 2008 funds displays a less marked contrast, with its fifth European fund reporting a multiple of 1.3 times cost and its third Asian fund showing a valuation of 1.1 times.

Investors say the second Asian fund’s performance in particular leaves a stain on the reputation of a buy-out group known for secretiveness paired with an aggressive investment style and tough internal competition.


“CVC has always been on the more aggressive side. That is why they have always caused controversy. But they are a quality group and they will come out of the crisis stronger,” a senior manager at a large investor into their funds says.

One person close to the private equity group says it has “taken the eye off the ball” and let too junior a team with not enough senior management control invest in the wake of the group’s success with its first fund in the region.

The other significant reason for the bad performance was its Asian joint venture with Citigroup, CVC’s former parent. The partnership made investment decisions more complicated and cumbersome in an investment sector where a common culture is key.


It only bought Citigroup out of the joint venture a few years ago, enabling it to have full control over investment decisions. At that time, it replaced some of the team members of the former joint venture and sent more of its senior partners such as Donald Mackenzie and Steve Koltes on to the Asian investment committee.

Apart from an unsuccessful deal in Japan, the restaurant chain Skylark, CVC’s main problems have been in Australia.

There, local head Adrian Mackenzie is fighting to prevent creditors from taking control over Nine Entertainment. But other Australian investments have also turned sour.


It has taken a loss of $500m in diagnostic imaging business I-MED, in which it originally invested $720m. A $450m investment in Stella, a travel booking and hotel group, is also encountering headwinds but CVC expects to return the majority of the money invested to investors, according to one person familiar with the buy-out group.

CVC is not alone in its travails. Many buy-out firms have had problems in Australia in part because they have raised outsized Asia Pacific funds but found it difficult to put the money to work in less familiar parts of the region.

Its problems in Asia come as the success-spoiled private equity group is looking to start fundraising in Europe in the second half of 2012 and in Asia probably in early 2013.

In Europe, no investor doubts that CVC will be able to collect the more than €10b they will again be aiming for.

In Asia, insiders concede that CVC might fail to raise the same sized fund as its $4.12b predecessor given the enormous competition and the problems with its second fund. KKR will start to raise its next Asian fund, expected to be up to $6b, next year, while TPG is already looking for up to $5b and Bain Capital is aiming at $2b.

“The fact that CVC might lose Nine is not going to kill their ability to raise funds in Asia. But I think they will likely raise less money, maybe $3b,” one investor says.

CVC declined to comment.

(Additional reporting by Henny Sender in New York)

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