Worldwide: Insights On Asia Pacific's Private Equity Fundraising Market

Last Updated: 31 May 2019
Article by TMF Group
Most Read Contributor in Netherlands, September 2019

There is little surprise that global PE groups are looking for an 'in' to Asian private markets. The region is home to huge numbers of private enterprises, yet to transform their potential into regional, let alone global players.

Fund raising activity for PE funds focused on Asia Pacific proved to be buoyant in 2018, with an estimated USD37.8 billion of net inflows recorded through the first nine months of the year according to Private Equity International's Q3 2018 Fundraising Report. This compared to USD37.7 billion raised for the entire calendar year 2017.

"Hillhouse Capital Group raised USD10.6 billion for its Fund IV, while Carlyle Group raised USD6.55 billion for its Asia Partners V fund," comments Rajindar Singh, Sub Regional Director APAC, Private Equity, Real Estate & Capital Markets at TMF Group, based out of the group's Singapore office. "It shows that investors continue to allocate to top names in the PE space."

Regional players such as the aforementioned Hillhouse Capital, and PAG, have tended to dominate fundraising in the region but according to PitchBook, heavyweight US names, including KKR and Carlyle Group are prospering in the region, from a fundraising perspective, with TPG Capital becoming the fourth US-based firm in the last 10 years to raise more than USD4billion for an Asia-focused buyout fund, closing TPG Capital Asia VII with USD4.6 billion.

"Asian institutional investors are not too particular as to whether the manager locally-based or a global manager, as long as they have a proven track record," explains Singh. "When we speak to some of our client fund managers, and their LPs, we find trust levels are good, which helps when raising capital for new PE funds and also RE funds. Knowledge across PERE is a good way to differentiate their offering and appeal to investors.

"If people have worked for global PE groups and chosen to spin off and set up on their own, even if they were well-known when working at that global manager it's not guaranteed they will be successful. Some managers launch and close down within a year or two. It shows that the platform, the team, the historical returns and the track record are key attractions to potential investors."

Interestingly, of the ten largest private equity funds in the market, six are Asia-focused. According to Preqin, in Q3 2018, 36 funds with an Asia focus closed having raised USD25 billion in aggregate capital; 2.5x that of Europe, where 39 funds closed with USD10 billion in aggregate capital.

Outside of the US, Asia is a major fund raising centre for global and regional PE players. It has helped, says Singh, that the performance of private equity against other asset classes has fared well and attracted strong interest among a range of limited partners, "especially global pension funds and SWFs". There is, he says, a sense of fear of missing out among LPs, when new funds come to market, especially among the household names listed above.

This has led to record levels of more than USD1 trillion in dry powder, with GPs facing increased competition with their peers to put capital to work in the best possible deals; all the while contending with record valuations in the marketplace, especially in the technology sector.

Singh says this has influenced the market to some extent, citing the activities of SoftBank Group, the Japanese internet conglomerate whose Vision Fund has directly invested more than USD70 billion in technology companies, with no sign of this abating according to Bloomberg.

"The SoftBank Vision Fund is a phenomenal development; it is unprecedented compared to previous years," says Singh.

He notes that while some global PE groups have undoubtedly had success fundraising in Asia over the last few years, thanks to their strong track records, the more regionally-focused the investment strategy is, the easier the fundraising process tends to be in Asia.

"If they are focused on countries or certain sectors, such as infrastructure where the investment horizon is longer, that is where it takes longer to draw in the right number of LPs.

"In areas such as logistics or warehousing in India, we have seen one leading PE client of ours successfully raise not only one but two funds, attracting a range of high profile pension funds.

"Some of the global players are also exploring opportunities in distressed assets, buying them from financial institutions in India and improving the fortunes of companies to generate good upside returns for investors. It is something we've started to observe – more sector-focused and country-focused strategies," says Singh.

According to Preqin fundraising 2019 research, Singh remarks that of the 290 private equity real estate funds being launched globally currently, approximately 25 per cent of them are focusing on the Asia Pacific region. Investors, he says, are looking for early stage growth funds, secondary funds, buyout funds and private debt funds.

"Private equity remains a core part of investors' portfolios," says Singh. "That said, 2019 could present a number of challenges in the market. We are seeing liquidity tightening in China and there is the ongoing trade conflict with the US to contend with. There are also valuation concerns; this is putting pressure on GPs to generate future returns to meet investor expectations. There could be a degree of market correction this year, which could impact some PE funds.

"Moreover, on the opportunity side the same deals are being chased by numerous PE groups. Competition is very high in terms of putting dry powder to work."

Indeed, this remains the case across global markets, not just in Asia.

But when one considers that in China and India, Asia is home to the 2nd and 5th largest global economies, each with its own burgeoning middle class and tremendous technology advances being made – for example, Chinese car manufacturers including BYD, JAC Motors and JMEV are leading the electric vehicle revolution – there is little surprise that global PE groups are looking for an 'in' to Asian private markets. The region is home to huge numbers of private enterprises, yet to transform their potential into regional, let alone global players.

For an ambitious PE group, this is an exciting time to be investing in the region.

"Aside from China and India," says Singh, "some managers we speak with are looking closely at established markets such as South Korea and Japan for the right opportunities to explore. To some extent, Vietnam is favoured. Indonesia is interesting too but PE groups are buying their time and waiting for the dust to settle following the recent elections in April. The dynamics there are still very good, especially in the consumer and financials space.

"Global PE managers whose strategies have broad pan-Asia exposure will also consider the Philippines, Malaysia and Thailand, whereas regional managers will tend to be more country-specific, or chose to focus on SE Asia (Indonesia, the Philippines) or North Asia (China, Japan, South Korea)."

In that regard, local PE groups present something different to the global behemoths when going after the same investors for investment dollars, able to demonstrate more of a niche and expertise in certain markets where local knowledge can uncover good companies to finance.

On the private equity fund administration side, including doing valuation work on the underlying portfolio companies on behalf of its clients, Singh feels there is plenty of future growth yet to be realized in respect to Asia's private equity marketplace.

"We continue to differentiate ourselves in the region and offer a strong value proposition. We leverage our strong global network and technology, operating in over 90 jurisdictions worldwide. We have deep local knowledge in Asia Pacific and can offer one-stop shop solution for PE and Real estate clients, globally, depending on where their fund mandate needs to be serviced.

"In 2019 and beyond, we will continue to focus on small to mid-sized PE Real Estate managers in the region," concludes Singh.

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This article was originally published by Private Equity Wire and Property Funds World.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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