US private equity firm EIG Global Energy Partners opened an office in Hong Kong yesterday to create stronger links to, and support for, Asian clients and source more deals from the region.
Washington, DC-based EIG manages $10.6 billion in assets and claims the longest track record with any specialist investment firm in the energy sector at 30 years.
Around 16-17% of that capital is sourced from Asia-Pacific including Australia (10% from Asia), with the aim to increase penetration of the region to 20-25% in the next couple of years.
Some 80% of growth in energy demand comes from Asia, and that is only likely to increase in the next decade or two, notes Blair Thomas, Washington-based CEO of EIG.
“But how much that translates to actual investment activity in this part of the world is open to question, since we invest where the resources are, not where the demand is," he told AsianInvestor while in Hong Kong yesterday.
“Still, having an ear to the ground here is very important. We expect to ramp up investment activity in the region – but it’s a mistake to think that will mainly come from these relationships in the region.
“Our investors don’t want us to find them the best energy deal in Asia, but rather the best energy deal anywhere. The first hurdle is the quality of the investment opportunity.”
The new Hong Kong office opens with three staff, including two investment professionals who transferred from the US: Will Thierbach and Stephen Suo are both executive directors and co-heads of the office.
Further expansion depends on how the business develops. “On a conservative estimate, we’d see those three being five to six people a couple of years from now,” says Thomas. “But hopefully it will be double that if we were to list in Hong Kong, given the greater infrastructure that would require.”
(EIG had planned to delist its investment vehicle from Goldman Sachs's US electronic platform and list it in Hong Kong in March, but pulled out due to poor performing equity markets. It still plans to move to a public exchange when sentiment improves, preferably Hong Kong, but it would also consider Australia, New York or Singapore.)
The firm has already done a fair bit of investment in Asia-Pacific, starting in Australia in the late 1990s. Most of this is in the export of resources from places such as Australia and Indonesia to North Asia – China, Japan and Korea.
EIG invests across the energy spectrum, including in energy-related resources such as iron ore, but not in non-hydro carbon resources such as precious metals. Its average investment size is $350 million, the smallest being around $100 million and the largest in the past year being $850 million.
It is now ramping up activity in Australia, has a small presence in Seoul and plans to build relationships with key players in the region, including big corporates and sovereign wealth funds (SWFs).
The firm has a relationship with the National Pension Service (NPS) in Korea – the country’s $300 billion state retirement fund. NPS has put money into a new private equity fund jointly launched recently by EIG, Korea’s Woori Asset Management and Korean steelmaker Posco that will invest in global natural resources, as reported by AsianInvestor.
Moreover, China Investment Corporation, which has a small stake in EIG, has a long history with the firm. The SWF has reportedly invested in the firm’s funds as well as being a co-investor with it on projects ranging from a Brazilian midstream operation to a tar sands undertaking in Canada. EIG declined to comment on the relationship.
So why set up in Hong Kong rather than Australia or Singapore? Thomas points to Hong Kong’s access to China, plus the fact that Singapore is a commodity trading hub and EIG is not a commodity trader but a long-term investor. He adds that Hong Kong is well-suited to accessing fast-growing capital in Asia.