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L Catterton eyes passion in picks like Charles & Keith, Seafolly

Pedestrians walk past a Charles & Keith store in downtown Kuala Lumpur, Malaysia.
Sanjit Das | Bloomberg | Getty Images
Pedestrians walk past a Charles & Keith store in downtown Kuala Lumpur, Malaysia.

Apart from being some of the most recognizable brands in Asia, footwear brand Charles & Keith, Australian swimwear brand Seafolly and K-pop talent manger YG entertainment are also among investment picks that L Catterton Asia has made.

"Our focus (is) basically making good to great," says Ravi Thakran, chairman and managing partner at L Catterton. The private equity firm launched this year is a partnership of U.S.-based Catterton, and luxury goods focused powerhouses LVMH and Groupe Arnault based in Paris, making it the largest consumer-focused private equity firm in the world.

Thakran said the work-in-progress goal for L Catterton in Asia is 10 companies in 10 years.

"The journey is still far but I would say a decade from now, we should have at least 10 examples of good companies being built from Asia," Thakran says.

Asian consumers have long been a growth target for luxury brands as growing wealth particularly in China and the entry-points of Hong Kong and Macau, but Southeast Asian hubs like Singapore also attract gleaming high-end brand stores for designers such as Marc Jacobs under the LVMH umbrella to Hermes under Groupe Arnault.

A shopper walks past a Louis Vuitton store in the Ion Orchard mall on Orchard Road in Singapore.
Sanjit Das | Bloomberg | Getty Images
A shopper walks past a Louis Vuitton store in the Ion Orchard mall on Orchard Road in Singapore.

But identifying up and coming Asian brands as possible investment opportunities is also a key focus for the fund with more than $2 billion under management. Thakran said that process means providing guidance and looking for spirit and smarts.

"Asian entrepreneurs already know how to make a good product at a good price. What they haven't been great at is making a great brand. Today, Asian entrepreneurs are no more looking for capital, they're looking for … know-how," Thakran says.

As for what makes investments work? Thakran says that he has come to realize that number-crunching alone will not make one successful. Surprisingly, a high level of emotional quotient is what really matters.

"When you're sitting with an entrepreneur, it's not just about figures, … logic … (or) a big strategy. I think you need to relate to him. He need(s) to really think (that) you are there for him and you really feel what he's going through," Thakran says.

Thakran said because many entrepreneurs in Asia tend to be first generation business owners, the emotional attachment to the businesses created from scratch is particularly strong. "We need to win the heart, win their mind(s) before we go win (with) logic," he adds.

On the more practical level, Thakran said there are some basic litmus tests he runs, including a "smell test" to see if business interests match.

"One thing is that you need to have a match (with the business owner) in everything," Thakran advises. If the entrepreneur and the investor do not see eye to eye on leadership and how best to bring the company forward, it is better to just not go in."

He also said that a four- to five-year time frame for bringing a business into a sharper growth phase has to be understood and that while a majority stake may not be required, small holdings such as "6 to 7 percent of value" may not be worth the time and effort.

Finally, Thakran says too many shareholders are a red flag, noting that complex subsidiary structures make it difficult to align exit expectations.

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