PRINT THIS PAGE Institutional Investor Profile: Melissa Ma, Co-Founder and Managing Director, Asia Alternatives26/09/2007. Source: AltAssets. 
Melissa Ma on the rise of Asian private equity, on the benefits of local experience, on the case for risk-adjusted return and on the importance of a diversified portfolio.  Asia Alternatives was founded in 2005 by Melissa Ma, Laure Wang and Rebecca Xu. It offers a platform to institutional investors who want to make private equity investments in Asia, and provides access to some of the best private equity managers in the region.
The firm closed its first fund, Asia Alternatives Capital Partners, in May 2007, on $515m, exceeding its original target of $350m.
Melissa Ma is based in the firm's San Francisco and Hong Kong offices. Prior to co-founding Asia Alternatives, Ma was a director at Hellman & Friedman, where she was responsible for sourcing and monitoring investments in the financial and professional services sector, as well as fundraising. She also has experience at McKinsey & Co., at their San Francisco and Hong Kong offices, where she worked in the private equity practice and the financial institutions practice. Before McKinsey, Ma was at Goldman Sachs, as a financial analyst in the financial institutions group in the investment banking division.
How is investment progressing from your first fund?
'We have been steadily investing the fund for a while. In fact, we invested in a number of funds before we even started fundraising. As a result, we are pretty far along in our investment, and pleased with our portfolio, with over 50 per cent committed to date.'
What is your investment focus?
'We focus on building a diversified portfolio across Asia, although we do not invest to strict geographic targets. Our job is to scour all the Asian markets and find the best opportunities and managers and provide our investors with a sufficient return that justifies the risk associated with investing in these various markets.
Our fund is focused only on Asia and we can invest all the way from Japan to Australia and New Zealand. The vast majority of our portfolio is concentrated in Greater China Japan, Korea and India.
By asset class, we invest in growth capital, buy-outs, venture capital and special situations, but predominantly in the growth and mid-market buy-out area.
So far, we have been steadily building our portfolio. We started with a vintage year 2005 fund. We have got some prior vintage year exposure through secondaries.'
How would you describe your investment philosophy?
'Our primary investment philosophy is one of risk-adjusted return. There are very different risks associated with the various markets in Asia. Investing into an early stage company in India obviously has very different risks from investing in, say, a buy-out in Japan. At the investment level you need to understand what the different risks are, both macro economic and private equity-specific. We invest in managers that have the ability to meet our minimum risk hurdles, both historically and going forward.'
Do you invest in distressed debt?
'We do invest in the special situation and distressed debt side of private equity. With the US credit and liquidity crunch, distressed debt has come much more to the forefront in the US and, to a lesser extent, in Europe, but we have felt that in certain countries in Asia it is a good opportunity, and has been for a while. We have been actively investing and looking at distressed debt managers and will continue to do so.'
How do you identify good investments?
'As with all things in private equity, it starts with the team. We believe that our team is one of the most experienced Asia-focused private equity teams, both in terms of tenure and range of backgrounds. We are one of the very few teams in the Asian fund of funds market which is a combination of former direct and fund investors with extensive private equity investment experience across Asia.
Laure Wong, for example, started at Goldman Sachs in 1992 and was part of the first group that Goldman formed for private equity, so that is 14 years as a GP in the region. Prior to Asia Alternatives I was on the GP side at Hellman & Friedman and before that with McKinsey in Asia. I feel this is very useful because we have a network of GPs in Asia, who we have known since we moved to Asia first - 1994 in Laurie's case and in 1995 in my case.
The Asian private equity market is still emerging, but as local managers we know all the teams that have been around for a while. It is still a rather small group. Most of the GPs in our portfolio and on our target list are people who Laure, Rebecca or I went to school with, have worked with, invested with or have competed against. There is a real familiarity - with the areas but, more importantly, with the individuals.
There is an increasing number of managers that are on their third, fourth or fifth fund. Access has become an issue when you want to invest with the best, with the experienced managers. I am pleased to say that we have managed to get into all the funds we had planned to participate in, but not only that, we also managed to get decent allocations.'
How has the private equity scene in Asia evolved since the mid-1990s?
'In 1994/95 the private equity scene was nothing like it is today. Many of the big companies that you see in the headlines now were not yet active in the region. There were very few firms and very few people.'
How do you conduct your due diligence?
'We have a combination of a top-down and a bottom-up approach. Top-down we review each market segment. Bottom-up, we screen the managers from a proprietary database which we have been building for the past three years. Our database comprises almost 500 managers, and the number is growing as the markets are growing.
Due diligence for us does not start when managers decide to raise a new fund. It is all about long-term relationships. You learn more about a manager before they start fundraising. Monitoring our portfolio is also part of our due diligence, for the next generation of funds.'
Do you invest in first-time managers?
'Most of our portfolio is made up of managers who are not first-time managers. We commit to teams who have been investing for a number of years, who have returned capital in at least one fund generation, and who have been working together for at least one fund cycle. However, that being said, we do selectively invest in outstanding first-time teams and are willing to take that risk if we feel they can be the next generation of top quartile managers.'
Do you invest directly?
'We plan to do a small number of co-investments from our current fund'
What are the sizes of your investments?
'They completely vary when you are trying to build a diversified portfolio like we are. We have a fund in our portfolio that is $75m and we have one that is $4bn. Our bite sizes vary accordingly. We are able to write very small cheques, say below $10m. However, we prefer a minimum of $10m and can write larger cheques as well.'
What is your investment outlook for the coming year?
'We have seen that fundraising in Asia comes in a geographic wave. Our view is that some of the very best China fund managers were in the market in 2006. This year we have seen a lot of pan-Asian managers out in the market. Our outlook right now is that we see a number of attractive Indian and Japanese managers in the pipeline.'
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