Doug Coulter - Partner and Co-Head of Private Equity for Asia-Pacific at LGT Capital Partners

0:08Hello, my name is Arshan and welcome to another episode of the LSE Focal Point podcast. Today, I'm delighted to be joined by Doug Coulter, a partner and the co-head of private equity for Asia Pacific at LGT Capital Partners. Doug started his career as a lawyer in Toronto, but has now been based in Hong Kong for 25 years. Before joining LGT Capital Partners in 2007, He was a senior investment officer at the International Finance Corporation, which is the private sector arm of the World Bank. Prior to this, he worked at Nomura Securities in Hong Kong. Doug holds an MBA from INSEAD, a master's from the London School of Economics, a law degree from the University of Western Ontario and a BA from Queen's University.

0:44Welcome to the podcast, Doug. It's great to have you on.

0:48Doug Coulter: Thank you so much, Arshan. It's a pleasure to be here with you today. Just to start, could you tell us a little bit about yourself, your career journey so far, and what brought you into the world of finance? Absolutely. So after the London School of Economics, where I had a fabulous year, I went back to Canada and went to law school. I decided after a very brief stint as a lawyer that it was really not for me. Lawyers obviously do super important work, and we work with them a lot in private equity, but the day-to-day job itself, I didn't like very much. So, essentially, I got on a plane and I flew to Hong Kong.

1:25Doug Coulter: And there are a lot of, at the time, and still are a lot of Canadians in Hong Kong, in the city here. And I slept on a friend's floor. And it was a time when jobs were plentiful here, even for people from abroad. And so I ended up pretty quickly, as you say, at Nomura Securities as a junior investment banker. And that really was what got me into finance. It was coming to Hong Kong. So looking back, could you share with us what initially drew your interest to private equity specifically? Sure. So I really was my time at the International Finance Corporation, the IFC. It's a pretty interesting organization.

2:05Doug Coulter: They've been around for 70 years. And in fact, people talk today about emerging markets. It was the IFC that coined the term emerging markets. And I do think that IFC, I think, is like one of those organizations that if it wasn't around, somebody would need to create something very similar. And just to give an example of its impact, and I think IFC probably would consider itself to be the world's largest impact investor in a way. And we're doing it long before, again, the word impact investing came along. But if you think back to the 1990s during the Asian financial crisis, IFC had left South Korea pre-Asian financial crisis.

2:47Doug Coulter: Why? Because South Korea, as a fast-growing Asian economy, had graduated from the IFC. They no longer needed IFC financing. There were plenty of private investors in Korea that could finance Korea Inc. But because of the Asian financial crisis, Korea basically invited the IFC back in. The IFC came in. They made a number of investments, mostly on the equity side, and many of them in Korean financial institutions, banks, insurance companies, et cetera. IFC made a lot of money, but they provided capital where and when it was needed, as they should. And then post-Asian financial crisis, when Korea once again went on a very positive growth path, IFC packed their bags and left.

3:32Doug Coulter: And so that, for me, just actually goes very much to what we talked about earlier, when we were talking about investing being very pro cyclical, sometimes the best time to invest is when things are very difficult. And that's often when really returns are generated. And one very personal experience I had at the IFC, which I think was what really drew my interest to private equity, more generally, and ultimately led me here to LGT Capital Partners, then this was post the dot-com bubble when nobody wanted to touch dot-coms. And we had an example of a company called Yandex where IFC was looking to make some investments in Russia.

4:16Doug Coulter: Again, this is post dot-com bubble. So you've got emerging markets times a dot-com company. Yandex at the time had a 70 % market share in Russian search, right? So this was the Google of Russia at the time. Nobody wanted to invest in this company. And so there was a very long decision at the IFC's investment committee. In the end, we invested. I was on the deal team here, one of a number of people. We invested in Yandex at a$5 million pre-money valuation. The company ultimately went public on the NASDAQ, and at peak, it was worth$30 billion US dollars. So it's just a great example of coming in and investing where others are scared, where people don't want to invest.

5:03Doug Coulter: Now, obviously, it's not always like this, but it's a good example of how one can do well if one is in the right place at the right time. And of course, again, one does need a certain amount of luck as well. Such a great story about not just the history of the IFC, but Yandex and actually seeing your investing philosophy applied. Thank you for that. And your role at LGT Capital Partners is very broad. You cover all of Asia Pacific, very broad mandate. What does a typical week or day look like for you? And actually, how do you spread time across those different regions? Sure. Great question. I guess the first thing I would say, no day is typical.

5:41Doug Coulter: So our job, if you really boil it down, our job as a team and as a firm is to build diversified portfolios of private equity backed companies. Now we really do this in three different ways. One of them is by backing fund managers. These can be buyout shops. These can be growth capital firms. These can be venture capital firms. So we back managers as an LP, as a limited partner. We also have a large global secondaries business. So we're buying companies that other people own, and that's our global secondaries business. And then we're also co-investing alongside our managers, our general partners in companies directly, and that's our co-investment business.

6:21Doug Coulter: So in a way, it doesn't really matter whether we're owning these companies indirectly as an LP or more directly through our secondaries in co-investment business, we are building these portfolios, often hundreds of companies. In fact, if you look at LGT Capital Partners' global business today, we have more than 600 manager relationships. And in our database of private companies that we own directly or indirectly, there are around 35 ,000 companies globally. So now to get to all of this, what do we need to do? The team here on the ground, and we have 15 private equity professionals across Hong Kong, Beijing, and Singapore, we take about 2 ,000 meetings per year.

7:02Doug Coulter: Now, many of these are very formal meetings in our offices or in the offices of our general partners, but more often than not, these are very informal meetups. They can be over dinners, lunches, coffees, drinks after work. The team travels widely as well. We do have an office footprint across the region, as I said, but we're not in all markets. So we do need to be in places like Bangalore, Mumbai, Delhi, Sydney, Melbourne, Seoul, and Tokyo. And the team does spend a lot of time on planes and we're out meeting managers, meeting companies. And so that's a big part of what we do. And I would say for me, about 60 % of my time is really on the investment side.

7:45Doug Coulter: And of course, it's the team doing much of the work, not me, but my job also as an investment committee member is to look at different opportunities. I'm also one of the portfolio managers for our Asia Pacific private equity business. And so we just need to ensure not only that we're making the right investments, but building robust portfolios. 40 % of my time would be talking to our investors. And that's obviously mostly about Asian private equity. And that's super important because it's really important for us to hear from the investors that have backed us as to what they're looking for and what they're concerned about.

8:24Doug Coulter: But also when we're out raising a new fund, we obviously need to go and talk to existing investors and new investors as well that may have an interest in Asian private equity. So that would be how I split my time. But just stepping back from a global perspective, LGT Capital Partners has a private equity team of over 120 investment professionals who the Asia-based team works with very closely. And while we always wear our LP cap, the way we think about engaging with the market is first as a partner to global and local managers, but also as a solutions provider where, for example, our global secondaries business can provide liquidity and various solutions to these private equity and venture capital firms.

9:07Thank you for that very insightful answer. I want to touch on one of the things you brought up. You mentioned how secondaries is a part of your strategy. I dug up an interview that you gave in 2010 for Super Return Asia. And you mentioned then the growth of the secondaries market. How has secondaries evolved over those 16 years? It's obviously exploded as a sector. And also, what opportunities do you see in that space today? Sure.

9:35Doug Coulter: So first of all, I would say that the global secondaries business has obviously seen dramatic growth. And you've had some very interesting guests on your podcast recently talking about global secondaries. So I'll just confine my marks to Asian secondaries. The first thing I would say is that it's a much smaller asset class here in Asia. And therein lies, we think, a big opportunity. But if you dial back, but it has changed and there is growing interest. For example, 10, 15 years ago, if you were at a private equity conference here in Hong Kong or in Singapore around the region, there might be one panel on secondaries.

10:13Doug Coulter: It would be typically last panel of the day. Nobody left in the room. Really, very little interest in the asset class in this part of the asset class. Today, that has changed pretty dramatically because LPs are looking to manage more actively their private equity portfolios. It may be Western LPs looking to cut back their China exposure or their Asian exposure more generally. Also, of course, GPs are using the secondary market because DPI or basically returning cash back to LPs has been one of the big issues in Asian private equity in recent years. So GPs are using the secondary market in GP-led transactions to sell either single assets or a number of companies that have other portfolios to generate cash for LPs.

11:03So for that reason,

11:05Doug Coulter: that the markets has increased in size. But what I would say is a couple of things here. Number one, Asian private equity, if you go back to 2010, when I did that interview, Asia was only about 10 % of global fundraising totals on an annual basis. So it was a relatively small part of the global private equity universe. By 2021, which was really peak private equity globally, Asia was responsible for about one third of all dollars raised for private equity strategies was for Asian private equity strategies. And much of that capital was earmarked for China. When people, and we might talk more about this later, but when people talked about Asian private equity during that golden decade for private equity, they were really talking about Chinese private equity with more than half of capital flowing into that market.

11:59Doug Coulter: And so today, what we find is that, in fact, 80 % of private equity NAV in the ground in Asia is in China. And this has opened up a massive opportunity for those interested in buying Chinese assets at a time when a lot of people don't want to buy them. There's a lot of supply available, and actually relatively little demand. And then just as a final point, even though Asian private equities is a much larger asset class than it was 15 years ago, the size of the secondary market here is barely budged. Today, if you look at secondary volume in Asia, it's only around 3 % of global totals. There's around somewhere in the neighborhood of$200 billion of secondary transactions done globally every year.

12:51Doug Coulter: and in Asia, it's been between$5 and$10 billion a year in recent years. So we're talking about single digit totals. We think it's not a matter of supply. As I said, there are a ton of interesting assets available on the secondary market in Asia. It's just a lack of buyers. Thank you for that. It's really good to get your insights on those aspects. Stepping back a little bit very broadly, you mentioned your role obviously on the investment and the time that you spend on the investing side of the business, very broadly speaking, for you, what makes a good investment? I guess for our business, we're both backing managers and we're investing in companies.

13:31Doug Coulter: And I think if you really take a big picture perspective on this, one thing we talk a lot about in our firm is pattern recognition. And a lot of that comes down to having seen what's worked and what hasn't worked. I mentioned the 35 ,000 companies that we've invested with both directly and indirectly over the years. So you really start to see patterns in terms of what's worked in different markets. A lot of that is around business models. That's really where you have to start. How does the business that you're backing have a real moat? How strong is the management team? Is the management team aligned with you and with shareholders, the governance structures.

14:11Doug Coulter: These are all important things. And by the way, the other thing which is very important to note is that you can have a very good company, but if you pay too much for the business, it's not necessarily going to be a good investment. Valuation is clearly extremely important. And of course, that's what an investment firm will spend a lot of time on. What is fair value for this business? Definitely what we see both in public markets where people tend to chase companies that have already gone up fairly dramatically in terms of market capitalization. we see the same thing in private equity. Private equity is inherently pro-cyclical.

14:55Doug Coulter: And therefore, one of our big learnings really over time is number one, you need to invest consistently across vintage years. One reality about private equity is that if you've invested a lot of money coming out of crises and difficult times, for example, post Asian financial crisis, That was a great time to invest. Post-GFC, that was a great time to invest. Coming out of COVID here in Asia has been a very good time to invest. Investing in China right now, we think China is a generational opportunity for private equity in Asia at the moment, just given the fact that a lot of capital, Western capital has left the country.

15:37Doug Coulter: So investing, but of course you can't time markets either. So that's the other problem. So you really do need to invest consistently across vintage years. And then we also talk at LGT Capital Partners a little bit about trying to be non-consensus. So again, that's not easy. Money does rush into hot stocks and hot companies, but trying to be a little bit non-consensus. For example, right now in Asia, our non-consensus trade would definitely be number one, buying high quality assets in China at very good valuations. And then secondly, it would be really backing some very strong Chinese venture capital firms.

16:23Doug Coulter: And for the most part, these are firms we've backed in the past. They've done very well, even in hot markets. But now they're in a market where valuations are much lower. There is a real need for risk capital because a lot of Western capital has left the country. And by the way, the fund sizes that are being raised by these Chinese VCs are much smaller than they were back in the boom days. There's better alignment. And we just think that these might turn out to be very good vintage years for in a market where a lot of Western investors have left. I think that's a really nice insight into your thoughts on the investing side.

16:57I'd like to transition over to more of a careers reflection section now. What role has education played in your career and what skills or lessons do you think students at university today should be focusing on developing? Great question.

17:13Doug Coulter: So listen, in my view, obviously skills that one learns at university can be super helpful to companies, right? As they're navigating critical business decisions. But really, when you step back and think about it, with most jobs, certainly including private equity, private equity is very much a business that you learn. You'll join a private equity firm and you're going to spend a lot of time working alongside C's into private equity professionals. You're going to meet a lot of incredible entrepreneurs. You're going to meet incredible private equity managers and VCs. So you're just going to pick things up over time.

17:54Doug Coulter: I do think ultimately it's the soft skills. That's what you really should focus on in college. Building relationships. What could be more important than that? And what you find is, especially with great schools like the LSE, definitely alumni are going to be super helpful, right? Even if it's just picking up the phone and having a conversation, meeting for coffee, that's never underestimate that. Number two, I would say just being curious and trying new things. Again, there's so much serendipity in life. You never know what relationship that's going to lead to another meeting and meeting somebody else.

18:32Doug Coulter: And then before you know it, you're sitting in front of somebody interviewing for some amazing job. So be curious, be open. And then I would say that in terms of what you study, honestly, not sure it matters that much. A liberal arts education really can be just as valuable as studying engineering or computer science. Again, companies are looking for different kinds of people with different perspectives. And that's actually, that's even more the case, I would say, in the investment world. The last thing you want on an investment committee or in an investment firm is for everybody to think the same way.

19:08Doug Coulter: You really want people coming at an investment decision with very different perspectives. And that includes from different perspectives in all senses of the word. Thank you for that. Just rounding off, I'd love to ask, is there something that you're watching, reading, or listening to at the moment that you could share with our listeners? It can be finance related, but it doesn't have to be. I do listen to a lot of podcasts. And I'm sure many of your listeners would know this podcast, not really breaking any news here. But one podcast I really like, and in fact, so Scott Galloway has been spending the last, I think, three, four years in London, in fact.

19:48Doug Coulter: But I think he's heading back to the US soon to NYU. But Scott Galloway and Kara Swisher have a podcast called Pivot. so they have episodes that come out twice a week and I really like it because they cover topics that I'm super interested in first and foremost technology but also business and politics more generally and they're just both super smart people so I think I get a lot of insight from that particular podcast and then lastly to round off do you have any parting advice for students that are just starting their careers especially those that might be interested in private equities specifically or even Asia specifically?

20:30Doug Coulter: Sure. I guess a few things, and that's a great question to end with. Thank you, Arshan. So first thing I would say is that people tend to do business with people that they like. And I think that is something that one should always keep in mind. I think another quote that has always really stuck with me is that 90 % of life is just showing up. It's really important to show up, meet people. I mentioned the word serendipity a couple of times. I think it's much more important than many people realize. If you decide not to attend that event or not to go to that course, not to go to that class, that might be a missed opportunity.

21:13Doug Coulter: Nicholas Taleb, who wrote one of my favorite books, Filled by Randomness, where he talks about the fact that in most lives, there are just two or three sort of key opportunities, situations that either fall into your lap or cross your desk. And I think obviously that the issue is figuring out what are the key opportunities. Sometimes you don't realize that they were opportunities until they're gone, but it's important to pounce on things that look interesting. And then just finally, I'd say, work hard, be prepared. And as a last thought, I would say jealously guard your reputation. Thank you very much for that, Doug.

21:54That brings us to the end of our conversation. If you enjoyed this episode, stay tuned for more and follow LSE Focal Point on all platforms to get notified of new episodes.