TPG’s Jin-Yong Cai sees opportunity amid market chaos

The former CEO of the IFC tells FinanceAsia why emerging markets still look attractive, how to make money in microfinance, and why he has joined a private equity firm.

Jin-Yong Cai, the former head of the World Bank’s investment arm, is moving to global private equity firm TPG at a time when emerging markets are in tumult.

For him, the market gyrations created by worries over the state of the Chinese economy, crashing commodity prices and rising US interest rates are creating buying opportunities and encouraged him to make the leap into private equity.

"In spite of recent volatility, there are still good investing opportunities in emerging markets, this is a more interesting time to look into those opportunities," Cai told FinanceAsia in an interview.

In his newly created role, Cai will try to source deals across Asia, Africa and Latin America that help to accelerate the economic growth of frontier and emerging markets. The position is effective from February 1.

"There are fast-growing middle classes with demand for better services from electricity and water supply to telecoms. The need for capital out there is tremendous,” Cai said.

Cai, 56, most recently served as the chief executive of the International Finance Corporation where he led investments in companies such as Postal Savings Bank of China.

"I am very excited about this new chapter in my career because I had seen interesting opportunities during my years at the IFC, and some of them should be interesting to investors, I would like to use TPG platform to make them investable," he said.

Cai and TPG’s management are still crystallising their strategy in this new area for the firm. Initially TPG will fund Cai’s investments from its existing capital and create a team of around 10 to 20 people around him. As the team’s activity ramps up TPG may tap investors for dedicated funds.

"Sourcing investments and helping build new businesses in frontier and emerging markets continue to be an important part of TPG’s business and future growth,” Jim Coulter, TPG's co-founder and co-chief executive officer, said in a statement.

TPG has made some ground-breaking deals in Asia, from its 2004 investment in Shenzhen Development Bank to its 2014 investment in Apollo, the first cell tower network in Myanmar.

“Myanmar is certainly an interesting example of where we could invest. It has 60 million people and is literally just opening up: they need everything. It has been starved of capital for many years," Cai said.

Indian promise

India is another promising area. In February last year TPG invested in one of India's private hospital groups, Manipal Health Enterprises.

TPG-backed Janalakshmi Financial Services was also among the Indian microfinance firms recently granted a banking licence.

"I have seen microfinance firms evolve into something sizeable and impactful. The size of loans are small but if you have enough scale and growth these companies can be attractive investments," Cai said. "In certain emerging economies this is an interesting way to get into financial services."
 
Over half of the world’s unbanked population resides in Asia, according to the World Bank. India and Southeast Asia have a combined population of about two billion people and more than 200 million households. 

Microfinance is a highly underpenetrated and potentially profitable business with high barriers to entry. Loan spreads are high and delinquencies are usually low.

The collection efficiency for most microfinance institutions in India is greater than 99%. That makes a high return on equity possible. 20% is achievable, said Morgan Stanley analysts in a research note.

The industry generally deals in small-ticket loans of between $35 and $250 to low-income segments such as farmers and corner shops. It typically involves doorstep delivery, cash disbursements, and cash collections, and loans are typically low-ticket and short-tenor, so the loan book-to-employee ratio is low compared with most other lending businesses.

"Traditionally microfinance has been labour intensive but now technology, particularly smart phones, can drive growth without driving costs up. There is a lot of innovation in this space," Cai said.
 
TPG and IFC have both invested in mid-sized Indonesian bank BTPN to help it increase lending to low-income families, micro and small businesses, and women entrepreneurs. TPG recently sold its stake in BTPN to Japan's SMBC at a profit. 
 
Connections

 

Cai is a 20-year veteran of the financial services industry and has held senior roles at some of the world’s largest financial institutions, including Goldman Sachs, where he was a partner and top executive in China.

“During our time together at Goldman Sachs, I saw firsthand Jin-Yong’s vision and expertise in identifying unique global investment opportunities,” said Jon Winkelried, co-CEO of TPG.

"I have known some TPG colleagues for a long time and the firm has a deep understanding of emerging markets,” Cai said. "TPG's management wants to expand and build additional capabilities."

TPG has grown from its roots as a buy out shop into a diversified asset manager investing in venture capital-style deals, distressed debt and real estate.

Cai previously worked at Morgan Stanley and was a key player in developing China’s first joint venture investment bank, China International Capital Corporation.

Cai, who began his professional career at the World Bank in 1990, has a Ph.D. in economics from Boston University and a Bachelor of Science degree from Peking University.

In his new role Cai expects to work with multilateral institutions such as IFC, Asian Development Bank, and the newly created Asian Infrastructure Investment Bank, which are often lenders to development projects in emerging markets. TPG will focus on the equity portion of the capital structure, on the business models, and efficiency.

“I know the multilaterals very well. What I can bring to the table is to help us leverage each others' strengths," Cai said.

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