Fast and Furious: Carlyle’s New Dealmaker In Asia –

Since joining The Carlyle Group last year, Wayne Tsou has been a deal-making machine. As head of Carlyle’s venture and growth capital investments in the Asia-Pacific region, Tsou has already managed five deals in the area, including investments in online game provider Runstar International of Shanghai; fabless chip company Huaya Microelectronics of Shanghai; and outsourcing company Newgen of India. Tsou has the advantage of understanding how to do business in both the East and the West. He was born and raised in Shanghai, then, at the age of 14, moved to the United States with his family. He went to college and worked in the states until he was 30, when he moved back to his homeland.

Q Tell us about the group you supervise in Asia.

A We have 13 investment professionals, with offices in Hong Kong, Shanghai, Bangalore, Tokyo and Seoul. We’ll open an office in Beijing in 2005. We have two investment funds at present: Carlyle Asia Venture Partners (CAVP) I manages $159 million. It was closed in 2000 and is the most successful Asian venture fund from that era, according to statistics from your parent group, Venture Economics, which also says that most of the funds from that era are still underwater. [The second fund is] CAVP II, which manages $164 million and is 70% committed. Carlyle has separate groups and funds for buyouts, real estate and growth capital investing in Asia.

Q And you’re based in?

A I’m based on a plane. But I spend about 50% to 60% percent of my time in China.

Q Who are your peers or competitors in Asia?

A My old colleagues at Warburg Pincus have deep experience in the region. Baring Private Equity. The Softbank Asia Infrastructure Fund. There aren’t a lot of big firms in our [competitive] space in Asia.

Q What are you areas of interest this year?

A We invest in four countries in Asia: China, India, Korea and Japan, where we have announced a new team that I will direct. We have separate strategies for each of these countries, different stage and sector interests. One thing is common in that we want to identify high growth companies that are run by successful entrepreneurs.

Q Tell us about your interests in each country, starting with China.

A In China we have five sectors of interest: IT, consumer services, media, medical equipment and manufacturing of all kinds. India is slightly different. We’re interested in IT services, pharmaceuticals, textiles, local services and finance. In Japan we’re interested in domestic outsourcing of services, like finance, core technologies such as instruments, electronics and ICs. Korea is a smaller market for us. We’ll position ourselves in technology there-mobile companies, displays and digital entertainment.

Q What about outside of those countries but within Asia?

A Those are the only economies that have the size and opportunities that we have an interest in.

Q You just announced a Japanese venture group that will report to you.

A Yes, it is led by Haruyasu Asakura in Japan and we’re hiring two juniors. It will invest from the current fund [CAVP II].

Q Given that CAVP II is 70% invested you must be raising a new fund for Asia.

A I can’t talk about that.

Q The Japanese economy continues to show signs of weakness. Why Japan now?

A Because of the sheer size and resilience of the economy. It’s the largest economy in Asia, a deep capital market and pool of talent. There are lots of opportunities there. The question is how to find them. You see a lot of people interested in the large buyout area in Japan, where we’re interested in the mid-cap opportunities that have not been a target for offshore or domestic funds.

Q That doesn’t sound like venture capital.

A There is a misconception about venture capital in Asia. You shouldn’t think of venture in the region as analogous to the Silicon Valley model that is traditionally technology oriented and mainly interested in early stage investing. [At Carlyle] we have moved from that view, of investing in early stage technology or Internet companies, towards providing growth and expansion capital, investing into a broader scope of industries. We’ve already done that in our current funds, investing in service areas in which technology is an enabler.

Q What are your goals for 2005?

A In 2003 we had only about $12 million invested in Asia. In 2004 we invested around $40 million in China alone and we’ll exceed $70 million or $80 million across Asia, outside of Japan. In 2005 that will grow.

Q Given your background in engineering and your experience in Asia, your interest in investing in displays and display components in Asia is somewhat surprising. Large companies like Samsung and LG are pouring billions of dollars into the manufacturing of LCD displays and components, over-investing in these areas to the extent that we’re likely to see a price collapse.

A You have to see this from a long-term perspective. There is a major shift underway in display technologies. There may be an over-investment today, but that will benefit the consumer. In terms of components, display drivers, encoders/decoders, where the demand for these products is rising, you have to know that this industry is cyclical and find areas where [investors] can play a role. You don’t want to invest in areas that are driven by manufacturing costs alone.

Q Over the last few years we’ve seen the Chinese government repeatedly announce and then quietly abandon attempts to promulgate standards, whether based on the desire to obtain Chinese control over markets or the desire to avoid paying technology royalties to foreign companies.

A Objectively you have to say that there is nothing wrong with the Chinese government wanting to set [its own] standards. The United States has done the same for 50 or 100 years. Still, as an investor you have to be aware of this and be very careful.

Q The value of the dollar continues to tumble against world currencies. What is the impact on venture capital in Asia?

A For buyouts there is an impact, but for venture capital there is no real difference. You can’t hedge currencies.

Q Do you have any concerns regarding valuations?

A Yes. But they’re different in each country and each sector. IC design in China, for example, is very over-hyped and over-priced. Whereas in Korea, where there are economic difficulties, there are lots of opportunities. You can’t focus on one country or one sector and succeed in private equity; the job of the venture capitalist is to see where the opportunities lie.

Q Has the threat of war in the region affected your interests?

A You have to take a long-term view of the region over the next 10 to 20 years. Our investments take three to five years to mature. If there are geopolitical forces that impact the region those developments may also represent opportunities [for investors].

Q Given all of that, what will you do in China this year?

A Our activities there are increasing. But China continues to be a place where it is difficult to grow quickly. Capital markets are not yet open there. [Despite that] China will be the largest portion [of our Asian investments] in 2005. There are great opportunities in China, but you have to be cautious about China’s growing pains.

Wayne Tsou

Managing Director

Carlyle Asia Venture

Age: 37

Education: BSEE from University of Michigan, MSEE from Caltech, MBA and law degree from Harvard.

Work: Associate, Morgan Stanley, 1995; Associate, Lazard Freres, 1996; Mg. Dir., Warburg Pincus, 1997-2004; Mg. Dir., The Carlyle Group, 2004-present.

Recent Deals: Runstar International, China; Huaya Microelectronics, China; Target Media, China; Newgen, India; Epivalley, Korea.

Focus: Expansion-stage deals in high-growth sectors specific to China, India, Japan and Korea.