For Example:In early 2000s, I was beginning a joint venture discussions with a company owned by a member of the Al Saud family of Saudi Arabia. I asked him about his family, which led to common values and principles(Din) I told him where I went to school- so I asked him, had he been educated in western schools, he says yes. He told me a story about some of his experiences in the west. I thought we had reach some psychological equilibrium. However in the next discussions he would use terms like I was there to” invade” his country markets, the word invade sounded colonial to me. I had too immediately take a stand to clarify what my intentions, position and what business approach was- I explained how much respect, I held for the history, culture and greatness of people of the region. He said that he regrets that I would find the word invade offensive” he said nothing was meant negative from our side”. However, I thought about the discussion and the history of colonialism- I was very young then. So I shifted my investment strategy from a joint venture to a strategic alliance approach. In a successful joint venture you have to invest in the commitment to a real relationship, because the cultural soft issues could mean the lost of capital flow or meaningful value.(yield) and a long term potential partner.
A strategic alliance is similar to a joint venture in many ways but in other ways very different. An alliance may be formed when one organization grants another the authority to exploit technology, research and development knowledge, marketing rights and so forth, but does not create a separate entity. A typical example of a strategic alliance is the basic-independent sales-property management representative relationship.To solidify this informal arrangement, a handshake or simple written MOU agreement may suffice. A strategic alliance is often less formal and a preliminary step to creating a joint venture. Consequently, both allow a global investor to quickly response to a changing environment and contribute complementary strengths in order to quickly seize opportunities.Licensing is particularly attractive to small- and medium-size property firms because it affords international expansion while significantly limiting risks. It rarely requires capital investment and does not require the parties to work closely together, demanding continuous attention. However the global private investment transaction is about relationships and it is based on informational asymmetries. The global investor must know how to use the various vehicles and alliances to achieve value and yield.
When studying capital flow patterns one should look at the various uses of the joint venture and alliances models used by Private Equity. Often with JV or alliances it is important that your alliance can bring something of value for your capital flow.
The Alliances , Debt Vehicle and Informational Asymmetries
For example In 2019, Blackstone Group was in search of opportunistic commercial real estate assets in Hong Kong, these assets were being spun off from HNA the Chinese conglomerate. HNA is evolving through a $11B de-leveraging process, to gain control of the targeted asset Blackstone utilizes alliances,Informational asymmetries and capital( equity) Blacksone uses the debt vehicle through a joint venture equity investment in PAG a Hong Kong private equity firm who holds $ 3.4 billion dollars of HNA debt. The debt instrument and Blackstone equity investment in PAG created the basis to the off market private sale of HKICM a Hong Kong construction company. The shares purchased, would give Blackstone a 69.54 percent stake in HKICIM($894M), is conditional upon HNA meeting a number of conditions, including resolving loans made by Blackstone affiliate PAG to HNA Group last year which were guaranteed by just under 1.4 billion shares in the Hong Kong-listed company(HKICM). Blackstone used capital investment in an alliance(PAG) and informational asymmetries to isolate and execute an acquisition of Hong Kong construction company in a private transaction.
Another strategy when looking for JV partner or alliances in foreign markets are law firms who specialize or represent property companies and developers. These law firms are a valuable source of information for the private sale, if successful the informational asymmetries and the alliance can open up other opportunities. The essence of the private transaction is based on informational asymmetries. Basar Global Group a company that specializes in off market private sales of global real estate assets relies on alliances informational asymmetries and privacy. While traveling a few members of Basar Global team had came across an article in the middle east media. The article stated that a property conglomerate was having trouble meeting bond obligations. Basar International Group thought with right informational asymmetries we could get a mandate from a New York based buyer that had approach them before concerning an unsolicited mandate offer for the conglomerate own trophy property. So Basar Group had an affiliate in the US who was connected to the lawyer of the middle east conglomerate. The conglomerates in house attorney stated that they would accept an offer at $550M dollars. Basar Group went to a New York based property company who Basar Group knew was interested in the trophy asset and in less than 24 hours had the NYC investor make an unsolicited offer for $550M dollars for the office property. Later the same New York based property mandated Basar Group to sale another property, a Fifth Avenue office building for $500M to a pre-selected targeted buyers list of global investor in an off market private sale. Informational asymmetries and techniques used by global companies to isolate and execute a property transaction off market without the bid auction process is a collective union based on confidentiality and informational asymmetries.
Selecting a JV partner or alliance can be based on asset class, project type casting and market nuances or scale of capital allocation. Use of alliances tentacles in the home markets is a develop skill based on project type market social nuances and track record. Some developing markets require strong on the ground alliance for our final example a of social impact moderate housing choice. An Indian conglomerate growth investment in Africa,the alliance partner- Actis is a socially and environment aware Private Equity firm with a solid infrastructure team in the Kenyan market. Actis, a leading growth markets investor and Shapoorji Pallonji Real Estate (SPRE), the real estate arm of one of India’s largest conglomerates, are set to launch a $120M new real estate joint-venture platform to meet the demand for affordable and middle-income housing in the sub-Saharan African region, starting with Nairobi Kenya. The Indian conglomerate choice of an alliance was the idea partner based on track record, property asset type, social and environmental impact. Most emerging growth markets do not offer an abundance of financial leverage because of value from growth and not value from hyper-supply of capital flow(leverage engineering).
When portfolio managers are analyzing global capital flow valuations much can be learned from venture capital private equity models and Asia markets-compared to the West. In Europe, over 80% of the funds dedicated to private equity investment have been raised for leverage buyouts, while the bulk of the funds focused on the emerging Asia region target venture capital or growth capital investments. Moreover, the few managers utilizing a control strategy typically only rely on moderate financial engineering. As a result, in addition to the multiple expansion, most of the value created is driven by growth rather than financial leverage.