Q: Is Asia an important part of your global franchise?
A: We’ve always viewed Asia as an important part of our mission to build the number one technology practice in the world. You can’t be global unless you’re strong in Asia. We took our time to find the right person because experienced technology bankers in Asia are scarce and we’re really, really pleased that we hooked up with Steve [Foland], whom I had known at Morgan Stanley when we were together there years ago. I think that he’s done a terrific job of building a great team and we have a very strong research team in Asia. In order to be the number one investment bank, you have to be number one in all regions, all products and all industry sectors, and we think Asia is going to contribute disproportionately more of our revenues going forward than other geographies. It’s got the highest growth rate and we think that the new company formation is very rapid and that the opportunities to do business there will grow more rapidly than some of our other regions. So, we have been growing our business in Asia over the last year significantly faster than we have in the US and in Europe, and we’re big believers in the area. We wanted to do it right, get the right people with the right experience, and we think that we’re on the right track.
Q: Clearly, CSFB has a great tech franchise, especially in the US and Europe. I guess the concern about building in Asia must have been that there have been a lot of shoddy tech deals coming out of Asia at the moment - you must have been worried about reputational risk?
A: No question about it. The one thing that has been part of our philosophy for a long time is that we don’t want to do the most number of deals - what we want to do are the best quality deals. You don’t want to risk doing some things that you wish you hadn’t in retrospect. That’s why we took so long to look for someone with the experience and judgment that Steve has, and the ability to build a team that can really look at things the same way we do.
Q: How do you see the markets going next year? How easy is it going to be for Asian tech companies to go to the US and list now?
A: I think it’s going to be a challenge for all companies, regardless of their geography, to get capital next year. The tech sector has been in a very unusual period over the last two or three years where almost anything is possible, and where valuations were so high that they were really testing people. In some senses, the bigger the party, the worse the hangover, and when you have a NASDAQ that is down from 5000 to 2500 it really has implications for all companies, regardless of where they are. Now, with respect to foreign issuers and early-stage issuers, they are going to feel the pain the most because the market is looking for scale, certainty, predictability and lack of surprises. I think that it’s going to be only the very best of the companies in all geographies that have access to the capital markets over the next year or so.
Q: So what sort of Asian companies do you think will be attractive for US investors now?
A: Companies who have more scale and substance – companies in the electronics area, the foundaries, contract manufacturing companies, the semi-conductor companies. Companies with large businesses that are somewhat predictable, even if they’re in cyclical industries. It helps that they have size and scale. Services businesses could come back and be equally popular, particularly service companies over in India that again have more predictable business models than some product companies do. I think it will be quite some time before the more speculative companies in the dotcom world, in any geography, get access to capital. Those companies really have to prove their business model, have some good news, and get a lot closer to making money before they’re viewed as positively again. Internet infrastructure companies, on the other hand, will be viewed positively because there’s no denying the fact that the internet’s going to grow. In these environments you tend to look for the arms suppliers as opposed to betting on any particular army.
Q: You’ve got a very big business now and it’s obviously generated a lot of money over the last few years. Does the massive correction in NASDAQ and technology stocks mean you’re going to have to downsize the business?
A: No, not at all. Our objective is to be the number one practice, and in order to do that you have to invest through periods like this and be patient. In the past couple of years, we’ve been struggling to hire people as fast as we could in order to keep pace with demand. If the demand for our services is a little bit lower then we’ll have the chance to grow into a more comfortable day-to-day existence. We’re not saying, “Oh my god, this isn’t going to work any more, let’s lay off a whole bunch of people”, that’s really not how we think about things. The beauty of our business is that we’re strong in all regions, we’re strong in all sectors, and we’re strong in all products, so we benefit from mixes and shifts. For example, last year we were very strong in internet and IT services; this year we were very strong in communications equipment, software and semiconductors. So even though the internet fell on its face, our business this year has doubled. In the same regard, because we’re very strong at raising private capital for companies that aren’t quite public, and because we have as strong M&A practice, those products will, I believe, more than offset the fact that our IPO business might be down. If you look at 1999, it was a year where most contribution was from new clients we added through IPOs, and this year that was by far a minority as most of our revenues came from follow-on common stock offerings and from M&A.
Q: Are you bullish on next year?
A: I am bullish on next year. I actually think that environments like those we’ve had for much of the last two years are in some respects less healthy, because they set people up for a lot of pain. In markets like the one we have right now, capital is rationed more intelligently and the value of advice and credible research goes up. In a market like we’ve had in the last two years, advice only slows you down, so that’s the last thing you’d want an investment bank to give you. Research doesn’t matter because everything is going up. In an environment like we’re experiencing now, judgment as to what alternatives people should consider, who they should be talking to in terms of strategic partnerships, and gauging the right time to sell or raise private capital, is crucial. Analysts that have credibility and the ability to sort through the ashes and find jewels are much more valuable in today’s market.
The other metric that we’ve used to grow our business faster than the market is ‘market share gains’. We’ve gained significant share against Morgan Stanley and Goldman over the last couple of years, and taken a lot of share from some of the former boutiques that have largely been bought up by bigger banks. By having the largest team, having a lot of capacity, experience and judgment, I’m confident that we’ll continue to grow our business through market share gains as well as market growth.
Q: How often are you planning to be in Asia next year?
A: We’ve got such a great team that I don’t really feel the need to be over in Asia every month, but I hope to be over two to four times a year. I think that’s really a testament to the confidence that I have in Steve and in our research team. They’re really doing a terrific job. We also have ways of staying in touch globally, by having investor conferences and planning conferences, where we see each other and review things. We also have a weekly call where we stay in touch with everything that’s happening in all of our key geographies, so we’re a pretty close-knit team, and hopefully I can spare a little bit of wear and tear on my body.
I’ll be in Asia as many times as I’ll be in Europe, even though our European business is perhaps, right now, two or three times the size of Asia in terms of revenue contribution.
Q: Which countries in Asia do you find exciting from a tech perspective?
A: It’s like asking you to pick your favourite children, but if you look at where the technology business comes from, clearly the semi-conductor and electronics strength of Taiwan is very exciting, and all the potential restructuring and financings going on in Korea looks like they’ll be very active. I also think that, for a variety of reasons, mainland China is going to have huge growth over time. And India for the services and software is a geography we’re paying a lot of attention to.
