Asian trek by Rebecca Fannin Updated 01:44 PM EST, Jan-9-2004

Simon Murray

He's not practicing to be a stand-in for Santa Claus; he's on a mission to raise money to put the Royal Geographic Society's archives online.

Those who have followed Murray's exploits over the last two decades might note that the trip also helps to keep Murray in the spotlight.

Bravado is nothing new for Murray. The executive chairman of one of Asia's more successful private equity firms, General Enterprise Management Services Ltd., Murray once enlivened a dull dinner party in Beijing by lying on his back and drinking every drop of wine in his glass without using his hands. Murray, who apparently had not forgotten his childhood training as a gymnast, held his glass with his toes, according to a Gems investor who witnessed the stunt.

The icy polar expedition, estimated to take 70 days, is the biggest challenge yet for Murray, 63, who served in the French Foreign Legion during his 20s and wrote a book about the experience that was made into a movie. He trained for the trek for several months, jogging while pulling heavy tires behind him. If he succeeds - and the bets are that he and his intrepid trekking partner will - he will become the oldest man to complete the journey.

But make no mistake. Murray is not all fun and games. The expedition comes just months before Murray plans to begin raising a $300 million to $500 million fund for Gems, its third.

"The thing about Simon is that he has enormous energy and enthusiasm and he makes things fun," says Michael Green, a Gems director and the chairman of Hong Kong-listed Arnhold Holdings Ltd., one of Gems' investments. "Yet he is serious and very conservative when it comes to business."

In a 30-year career Murray has compiled a remarkable CV, including a long stint as a chief honcho to Asia's most famous tycoon, Li Ka-shing, at Hong Kong conglomerate Hutchison Whampoa Ltd. from 1984 to 1993, followed by serving as chairman of Deutsche Bank Asia from 1993 to 1998.

Along the way, he has acquired that essential ingredient for success in Asia - guanxi, or close relationships with in-the-know people. His network of connections extends to his limited partners, including American International Group Inc., Japanese trading company Mitsui & Co. Ltd., Swiss luxury goods company Richemont and General Electric Co.'s GE Capital, plus Hutchison Whampoa and Deutsche Bank AG. Gems' advisory council includes Henry Kissinger, former Hong Kong chief secretary Anson Chan and Lord Charles David Powell, an adviser to former Prime Minister Margaret Thatcher. (The firm's eight-member team of directors, who own 45% stake of Gems, have committed $20 million of their own to its funds.)

Like most investment firms, Gems capitalizes on the cachet of such advisers. And Murray certainly is not shy about doing so. At a recent Asian Venture Forum in Hong Kong, Lord Powell gave the keynote speech on geopolitics, quipping that Murray had told him to mention Gems "no less than 10 times."

Murray set up General Enterprise Management Services in 1998 and has raised two medium-sized funds at $275 million each. But his firm has always been known by its catchier acronym, which was intended to signify hunting and finding good values in the post-Asian financial crisis of 1998-99.

Asia has absorbed hundreds of millions of Western private equity dollars over the last decade, but it has proved notoriously difficult for investors to exit with a profit. Yet Gems' performance is impressive. Gems' first fund invested in 14 deals totaling $231 million and has exited five, racking up a 25% internal rate of return. That is far better than most Asian private equity firms, most of which have never broken out of the single digits; many are still in negative territory. As of early November, the first fund had returned $170 million to investors - $60 million in capital and $110 million in profit - according to chief executive officer Geoff Spender, who worked with Murray at Deutsche Bank and Hutchison.

In Asia, where initial public offerings have been challenging because of the limited liquidity in local stock markets, Gems nonetheless made good money on two IPOs - Japanese wireless operator Yozan Inc. and China National Offshore Oil Corp. It also scored with two convertible bond investments.

Despite the track record of the first fund, its second, Gems Oriental & General Fund II, closed in early 2002 at just $275 million, well short of its $300 million to $500 million goal. Murray, interviewed in his chic London office close to St. James's Park before his polar trip, claimed the fundraising hadn't gone too badly considering it got under way shortly after Sept. 11. The second fund has now deployed $82 million in five investments.

Just as Murray is unconventional, his firm does things differently. Gems generally takes only minority stakes and has shunned industry specialization or any country focus. And it will not invest in either early-stage venture deals or leveraged buyouts.

Instead, it has hedged its bets in the topsy-turvy Asian market, investing no more than 30% of its capital in a single country or more than 20% in an industry. With capital invested in private and public companies, its portfolio is eclectic. The firm has backed construction of a seaside resort hotel in Phuket, Thailand, where Gems has held its annual general meeting.

"The firm has seen about 1,200 deals. No one else in Asia sees that many and they have a good dealflow because they are out there beating the bushes for their own deals," says Kenneth S. Courtis, vice chairman, Goldman Sachs (Asia) LLC, who serves on Gems' advisory council.

Another distinction: Gems clusters its team in Hong Kong rather than spreading members across regional offices as do most firms. The result is improved communication but at the price of jet lag and weariness from constant jaunts to check out and sign deals.

Despite the fly-in strategy, the word around the industry is that the Gems staff does its homework well in sourcing and structuring transactions.

Some criticize the Gems team for being too "Western" - several of its partners are from the British Isles or Australia. An executive of a rival Asian private equity firm, for instance, argues that it's an advantage to have a diverse staff that speaks local languages and understands local cultures and markets.

There is a risk, too, in Murray's dominant role in the firm.

"There is no question that Simon brings the magic that makes it work," says Gems director Green. "Gems could not have happened without Simon. But the firm is not where it was five years ago when they started out, and he has a damn good team."

Though Gems' first fund has shown admirable returns, the firm has had some dud investments.

Like so many other investment firms, Gems fell victim to the dot-com era seductions. For example, it invested $24 million in Green's firm, Arnhold Holdings Ltd., a building products importer, and tried to transform it into a technology play. Renamed I-Onyx, it shelled out HK$47 million ($6 million) for a Chinese online publishing business and a pan-regional, high-speed Internet access provider.

No sooner had the money been spent and "the whole tech outlook was not looking so good, so we decided not to continue feeding these companies," says Gems executive director Graham Soutar. Gems eventually wrote off $2 million, but it managed to recoup $22 million of its original $24 million when Arnhold repurchased the shares in January 2002. Arnhold has now reverted to its original name and business.

"The timing was just a little late; we were five minutes late," Green says.

Gems also blundered with a $25 million investment in the rights to Formula One auto racing three years ago. It initially invested alongside London's Morgan Grenfell Private Equity in Speed Investments Ltd. Speed held a 50% stake in entities with rights to promote the races worldwide. When Germany's EM.TV acquired Speed in early 2000, Gems ended up owning a block of shares in EM.TV. The media company, which owned the rights to the Muppets, had been the darling of investors, but its stock price soon collapsed when its revenues turned out to have been inflated. Eventually the company went bust.

Gems has revalued its investment in the deal, says Soutar, which remains on the books until the first fund closes. But Morgan Grenfell, which lost about $275 million on the ill-fated transaction, viewed EM.TV as a complete write-off .

Murray says his mistake was in relying on due diligence from his co-investor. Murray adds that Gems had been urged to accept EM.TV's all-stock offer for the rights within 24 hours, before the shares escalated further.

Gems is also likely to lose the $40 million it infused into LG Card Co. Ltd. in December 2000. The company, South Korea's largest credit card issuer, missed a $419 million debt payment due this month, and its creditor banks, which bailed it out with $1.7 billion in new debt in November, have effectively taken it over.

On the flip side, the star performer for Gems is Japan's Yozan, a wireless telecom that Murray learned about through Gems limited partner Mitsui, a shareholder in Yozan. Gems invested $12 million during 1998-99 for a 25% stake and exited in September 2000 with $80 million when it listed on the Japanese over-the-counter market. Gems still holds a 8.2% stake.

"We took out $80 million and we have another $10 million left" in the company, Soutar says.

Gems took an active role in developing the company. The firm, which held two board seats at Yozan, advised on strategic planning and management, and introduced potential customers and business partners, according to Yozan president Sunao Takatori.

A close second in performance was China National Offshore Oil, a large offshore oil and gas company in China that went public on the Hong Kong stock exchange in February 2001. Gems invested $25 million in CNOOC and made $44 million when it exited last year. The firm retains a nominal holding, Soutar says.

In another exit during 2002, Gems redeemed bonds in Hong Kong-listed Proview International Holdings Ltd. after investing $20 million with GE Capital Equity Investments Inc. in 1999 for a 13% stake via a convertible bond issue.

Gems also made money from a $20 million investment in Sino-Forest Corp., a Canadian-based forestry firm that manages timber plantations and paper mills in China, when it converted some of its bonds to shares in the Toronto-listed firm last year. Sino-Forest's shares rose over the past year from C$1.05 from the beginning of 2003 to C$5.02 ($3.92) as of Jan. 6, and the firm is being readied for a listing on the Hong Kong stock exchange. Gems has the option to convert more bonds in the Hong Kong listing. The firm also saw a partial distribution from an investment it made in venture capital fund Crescendo III.

Remaining in the portfolio are a Japanese Internet bank, eBank; Korean banking software firm IKMS System Co.; Singapore software group Eutech Engineering Pte. Ltd.; and Hong Kong's Executive Centre Ltd., which leases outfitted offices in Asia.

With the first fund fully invested, Gems has turned to handpicking firms for its second fund. The outbreak of SARS last February in Asia slowed the pace of investing, but the team has nonetheless signed five deals, two of them high-profile.

In one, it doled out $35 million to China's Grace Semiconductor Manufacturing Corp., well-known in Asia because of its co-founders: Jiang Mianheng, son of former Chinese President Jiang Zemin, and Winston Wong, son of Taiwan tycoon and Formosa Plastics Corp. chairman Wang Yung-ching.

In a second, Gems took a 20% interest in a consortium of investors led by hotelier Ong Beng Seng that won a 51.23% stake early this year in Singapore-listed NatSteel Ltd. after an eight-month takeover battle with corporate raider Oei Hong Leong. The deal valued NatSteel at $216 million, and Gems says NatSteel's dividends have already paid back much of its investment.

The team also has put money into Hi-Tech Wealth Group, a maker of personal digital assistants in China; XA Alliance, a Singapore-based telecom customer service portal; and EM Resources Ltd. Gems declines to name the company's business or provide further details about it, and an Internet search for the firm turned up nothing.

With plenty of deal-scouting and deal-exiting on the horizon, the Gems team is eager for Murray to return from his extended hike. But they profess not to be nervous about Murray's safe return. (On Jan. 3 he passed the halfway mark, according to the expedition's Web site, www.southpolemission.com)

Murray himself was looking into the future as he took his first strides across the icy terrain. Green recounts a call he received from Murray from southern Chile, where he and his party were waiting for the Antarctica weather to clear enough so they could fly to their starting point.

"Simon told me that, if he finishes this trek at his age, what a great story it will be when it comes to fundraising."