Private Equity Giant Bets on Asia

By Maria Trombly | Securities Industry News | October 10, 2005

Global private equity firm Carlyle Group is putting more than $1.6 billion of its assets under management into Asia. To help the process along, the firm is opening offices in Beijing, Mumbai and Sydney.

The Beijing office is Carlyle's third fully staffed location in China and will focus on technology investments, real estate and buyouts.

Carlyle is not the only foreign investor seeing gold in China. Beijing-based Baidu.com, China's answer to Google, listed on Nasdaq this summer and immediately soared to stratospheric heights. Although the local Chinese stock market is at eight-year lows, three of the top-five tech IPOs this year were of Chinese companies listing overseas. Wayne Wen-Tsui Tsou, head of Carlyle's Asia growth capital group calls the Zhongguancuan district of Beijing the Silicon Valley of China.

Carlyle established its Sydney office last month as part of Carlyle's growing Asia buyout group. The Mumbai office opened its doors in August, with seven investment professionals handling growth capital and buyout business in India. Other offices are already in place in Shanghai, Hong Kong, Seoul, Singapore and Tokyo.

"We see great opportunity in India," says Shankar Narayanan, who heads Carlyle's India growth capital team.

One recent pan-Asian project is a $410 million Asian real estate fund, which through leveraging can purchase about $1.5 billion worth of real estate. The fund will target China, Japan and Korea, according to Rio Minami, head of Carlyle's Japan real estate group.

All this effort requires technology infrastructure and, rather than building its own, Carlyle has outsourced the whole thing to Foster City, Calif's Equinix, a global data center and Internet services provider. Carlyle will rely on Equinix's Hong Kong Internet Business Exchange center.

The availability of professional services was a key factor in selecting Equinix, said David Roth, IT principal of Carlyle, in a statement. "We were especially impressed with the customized solution that Equinix provided to meet our specific needs," he said. Equinix engineers, for example, will go on location to assure reliable operations.

In addition, Equinix is vendor-neutral, meaning that customers aren't locked into any particular telecom carrier, and it pays close attention to security, a major issue for financial services firms. Its Singapore location boasts backup power generators, biometric scanners and hundreds of surveillance cameras.

"The confidential and sensitive nature of our business dictates the need for a high-performance data center environment and professional services that ensure high availability for our critical operations," said Roth.

More than 1,000 companies globally, including IBM, Ticketmaster, Amazon, Yahoo, Google, MSN and brokerage optionsXpress are attracted to Equinix's telecom collocation capabilities: It can connect them to more than 100 service providers overall.

"We do not own a network," says Philip Koen, COO and president of Asia-Pacific for Equinix. "We have a number of different networks in each of our collocation facilities, which allows customers to choose their provider." Having 15 data centers in the U.S. and Asia "allows us to provide a total solution to our multinational customers."

Carlyle is "a great example," says Koen. "This is a key point [in their selection process]--the importance of having a quality service provider for what they're trying to do. The customer gets a consistent experience no matter where they go."

Customers also benefit from Equinix's growing stable of clients--they can do business easily with other companies using the same facility. "A customer like the Carlyle Group will naturally want to buy services from our network providers," Koen explains. "To the extent that we have content and enterprise customers in our facility, carriers and network service providers in our facility, our customers are able to do business with each other. We call that a network effect."

Equinix says that Asian telecom companies -- the likes of China Telecom, NTT in Japan and Singapore's SingTel -- are its closest competitors in the region.

Koen notes that there's been a dramatic change in customer demand over the past few months. They are seeking more and more IT services, in effect outsourcing IT operations to Equinix as Carlyle is doing.

"The biggest challenge we have right now," he says, "is to continue to grow our capability as a response to market demand." This includes hosting Web, database and operations servers, firewalls, switches and other hardware for Webbased applications.

"More and more companies are saying that this isn't core to what they do," he says. "They made the decision that they don't want to be responsible for that type of equipment and they want it placed in a third party. That's an evolving trend that we've seen more of in the last eight to ten months."