What's next for Asia's growth: A talk with Treasure Capital Asia's CEO Stanley Chin

Asia, particularly Southeast Asia, is seeing significant growth driven by foreign direct investment and innovation. Corporates and investors are increasingly focusing on energy transition and technology adoption in the region.

Stanley Chin recently sat down with Covelent managing partner Nik Nicholas to discuss the promising growth sectors in Asia and how the investment environment compares to Europe. This interview has been edited for length and clarity.

Covelent: Good morning, Stanley. How are you?

Stanley Chin: Good morning. I'm well, thank you.

Covelent: Doing well, thanks. It's been a while since we last met. How have you been?

Stanley Chin: Busy, but good.

Insights on Regional Markets and Business Dynamics

Covelent: Stanley, I'd love to get your perspective on regional markets and what growth strategies drive value in Asia. We've been analysing growth strategies across Europe, Asia, and the US, and there are stark differences.

Stanley Chin: Certainly. Until recently, China has captured most of the flows because of the size of its economy and its enterprising people, abundance of human talent, etc. Of course, it's the manufacturing hub of the world with world class infrastructure. Due to geo-politics, capital flows is more spread out now.  So in the last few years, a lot of the money has been channelled towards Southeast Asia which is still quite fragmented.

Nevertheless, it has a fairly large, quite young population, around 673 million people, comparable to Europe. The main financial centre for Southeast Asia is obviously Singapore. Singapore has captured a lot of flows, especially from China with the Singapore government's policies to attract family offices to set up bases in Singapore with various tax incentives.

But most of this capital is quite passive.

Covelent: So staying with capital raising, what are some of the headline differences in investor expectations when you compare Asia with the Western market, in particular with Europe?

Stanley Chin: In Asia, there is a lot of money in the system, but private markets for investments into innovation, start-ups is still in early stages of development.

But there is also an increasing number of corporate venture capital (“CVCs”), they have the technical team who are able to kick the tires and also a lot of these corporates are cash rich. Increasingly a lot of institutional investors are co-investing with the CVCs and vice versa

Covelent: With that, the growth strategies must diverge at some point, given the capabilities and the sectors and stage they focus on?

Stanley Chin: Indeed, CVCs transactions are not just driven by IR and equity multiples, it's whether there's a strategic fit with the corporates. For example, with technologies/expertise which the corporates don't have in-house, they may want to buy in. And also most importantly, whether this strategy investment will lead to future commercial opportunities for the corporates.

For example, in recent years, a lot of the big corporates have set up hydrogen teams and decarbonisation teams for a number of reasons. One is that in-region we have a lot of big industrials with assets like power plants, coal, mining, cement production and so on. So these big corporates have a lot of pressure from their investors and banks to have an energy transition story and a decarbonisation roadmap.

Comparative Analysis of Global Investment Strategies

Covelent: Staying with growth, how do you see the differences in growth strategies between these regions?

Stanley Chin: The US and China focus heavily on innovation as a growth strategy, whereas Europe tends to regulate more which may frustrate innovation in the short-term but may yield longer-term benefits such as those relating to ESG, decarbonisation, etc. In Southeast Asia, governments are lighter on regulations, creating a more conducive environment for business and technology adoption. For instance, while the US has a sophisticated capital market that drives innovation, Southeast Asia benefits from sovereign wealth funds and lighter regulations that encourage quick technology adoption.

The US capital markets are incredibly sophisticated, providing a broad range of funding from angel investing to IPOs. This access to capital has been a catalyst for innovation. In contrast, Southeast Asia is seeing a significant influx of capital from sovereign wealth funds and private investors, which, combined with a favourable regulatory environment, is driving growth and innovation.

Covelent: What are the implications of these strategies on ESG and sustainability, particularly in emerging markets?

Stanley Chin: In developing markets, ESG considerations are secondary to affordability and basic needs. We take a gradual approach to ESG, working with large corporates on energy transition roadmaps, starting with accessible solutions like grey hydrogen before aiming for greener alternatives. This more pragmatic approach helps in balancing immediate economic needs with long-term sustainability goals.

At the moment, the cost differential is actually bigger than the US because the US has the benefit of government subsidies such as the Inflation Reduction Act which could for example lower the levelled cost of production materially.

This is mirrored in the EU, where it is also skewed by subsidies because you have the EU Innovation Fund, the European Green Fund and so forth. Asia doesn't have this kind of subsidy, at least at the moment.

So it's actually more privately market driven.

In Southeast Asia, there is a concerted focus on more practical and incremental steps towards sustainability rather than drastic measures. This approach is more feasible given the economic constraints and developmental priorities of these regions. Working closely with large corporates, we aim to integrate ESG considerations in a way that aligns with their strategic goals and operational realities.

In Southeast Asia, governments are lighter on regulations, creating a more conducive environment for business and technology adoption.

Sector-Specific Opportunities and Challenges

Covelent: What sectors do you see as most promising for growth in the coming years?

Stanley Chin: So energy as we just touched on and the second big area of focus is data centres, which will give us also a direct as well as indirect exposure to the growth of AI.

Due to multiple factors, there has been significant FDIs into data centre development in Southeast Asia. Southeast Asia has the benefit of a lot of land and natural resources, especially Malaysia, which is the number one hotspot for data centres because of the low cost of power. Malaysia is the lowest in the region because it’s a net energy exporter. And then the cost of land is a fraction of places like Singapore.

Proximity is also a driver because a lot of the multinationals have their HQ, regional HQ in Singapore, but they're manufacturing in Malaysia. So taking advantage of the regulations, the framework in Singapore and the much cheaper cost base in Malaysia.

Covelent: So with that, a shift in your strategy has been needed, has this been across the board or just for the asset class?

Stanley Chin: We are halfway through this decade, so the shift has been gradual. Last decade, we were more or less 100% focused on China, now the hotspot for FDI is Southeast Asia. But it’s very fragmented. It's not like the EU. You don't have a single currency, for example. And the market and cultures are very diverse.

So the most important asset class for us has been real estate with a focus on data centres, due to the relentless growth of big data and AI. And there are only certain variables you need to take care of. The land costs, the zoning, you need to have guaranteed supply of power, water, and also understand the requirements of it.

Effectively there are two types of data centres. One is the hyperscalers, the other one is co-location. If you have a prime site, you will tend to go for co-location because you can get higher revenue from a mix from a group of tenants rather than a single tenant, however, leasing to a large single tenant i.e. a “Magnificent 7” brings long-term income stability and security hence the project economics needs to be assessed on a project-by-project basis.

But to be effective here, a strong real estate capability is needed. Like for example, to make sure that you have enough floor to ceiling height. To stack the data centres, because over time, the type of service will change from low to higher density. That means the type of cooling system will also change from air cooling to more liquid cooling. If you have more liquid cooling, you have a heavier load. You make sure you put in place enough loading. Now granted, much of this change is the responsibility of the operator, but you can effectively only build the real estate once.

Leadership and Team Management Across Cultures

Covelent: You’ve led teams across various cultural landscapes. What are some key lessons you've learned?

Stanley Chin: Understanding individual motivations and ensuring alignment of interests are crucial. Building trust and working with specialised, knowledgeable people allows for effective management without micromanagement. For example, in my experience, aligning the interests of team members across different regions and ensuring they see the direct benefits of their contributions fosters a cohesive and motivated team. This approach has been instrumental in managing diverse teams effectively.

One of the most important lessons I've learned is the value of local knowledge and expertise. Each market has its own unique cultural and business practices, and understanding these nuances is essential for success. Building a diverse team that brings together different perspectives and skills helps in navigating these complexities and making informed decisions.

Covelent: How do you attract and retain top talent in competitive markets?

Stanley Chin: I lean on a core group of long-term colleagues and partners. Providing the right incentives and alignment of interests helps retain specialised talent. Additionally, creating an environment where innovation is encouraged and supported helps attract top talent who are looking for opportunities to make a significant impact.

One of the most important lessons I've learned is the value of local knowledge and expertise.

Future Opportunities and Reflections

Covelent: Looking ahead, what do you see as the key challenges and opportunities for businesses like yours?

Stanley Chin: The most interesting opportunities lie in net zero decarbonisation and AI. The biggest challenge is funding, especially in the early stages. It's harder to raise small amounts compared to larger sums due to institutional investment patterns. For example, raising $1 million for a startup is often more challenging than securing $100 million for a well-established project. This disparity can hinder innovation and early-stage development.

Another challenge is navigating the geopolitical landscape. With increasing tensions between major economies, businesses need to be agile and adaptable to changing market conditions. However, this also presents opportunities for companies that can effectively manage these risks and leverage their strengths in emerging markets.

Covelent: Balancing AI and decarbonisation is challenging. How do you see this playing out?

Stanley Chin: They can complement each other. Advances in technology help solve issues related to energy consumption, making decarbonisation more achievable. For instance, implementing AI-driven energy management systems in data centres can significantly reduce energy usage and improve efficiency. This synergy between AI and decarbonisation technologies can drive substantial progress in both fields.

AI can also play a crucial role in optimising renewable energy systems, predicting energy demand, and improving grid stability. By leveraging AI, we can enhance the efficiency and reliability of renewable energy sources, making them more viable and cost-effective. This integrated approach helps in addressing both the technological and environmental challenges of the future.

Covelent: Reflecting on your career, what decisions have helped shape your journey?

Stanley Chin: Early decisions like pursuing chartered accountancy and transitioning into corporate finance and real estate were key. Adapting to market shifts, especially moving focus. For example, recognising the shift in technological changes, investment flows i.e. towards Southeast Asia allowed us to pivot and capitalise on emerging opportunities in the region. My early years in accountancy training, corporate finance, asset management in Europe provided a diverse foundation that was instrumental in shaping my own strategic approach and formulate business plans as ultimately everything boils down to dollars and cents i.e. market-driven economics.

One significant decision was to join a US developer after working in fund management. This transition allowed me to gain hands-on experience in development projects and understand the intricacies of the real estate market from a different perspective.

Covelent: What advice would you give to young professionals entering this field?

Stanley Chin: Build a strong general knowledge base, focus on technical subjects, and stay open-minded. Financial skills are important, but technical expertise provides a solid foundation. Additionally, cultivating a broad understanding of global markets and staying informed about geopolitical trends can help navigate the complexities of international business. For instance, understanding the regulatory environments and market dynamics in different regions can provide a strategic advantage.

For young professionals, gaining diverse experiences across different markets and sectors can be incredibly valuable. This not only broadens your skill set but also helps you build a network of contacts that can be beneficial throughout your career. I always encourage young professionals to be adaptable and open to new opportunities, as the ability to pivot and adjust to change is an invaluable one.

Covelent: Stanley, thank you.

Stanley Chin: My pleasure.