Asia-Pacific fundraising to brighten next year as market looks rosy again

19.11.14 / Author: Anjali Piramal, Proprietary Intelligence

Next year promises to be a good year for Asia Pacific private equity fund raises, sources polled by this news service said. Exit markets have finally opened up and as limited partnerships (LPs) reap the benefits, more allocations are likely.

As of 18 November, the amount raised by funds with a purely Asia-Pacific focus was USD 38bn, compared with USD 35bn for the same period last year, according to data by Bain and Company. Last year, fundraising took a beating as growth in China sputtered, hot markets such as India and Indonesia failed to deliver returns, funds failed to hit targets, and LPs grew cautious about allocating capital to emerging Asia. All that is slowly changing.

“Almost all of the world’s large LPs are increasing their allocations to emerging markets and Asia,” said Suvir Varma, who heads Bain & Company’s private equity practice across Asia Pacific. “Some are moving from 0% to 5% and others are starting at a much higher number and going up from there.” Large Asian LPs – such as pension funds in Korea and Japan are more likely to favor Asian funds, he added.

For large LPs, especially pension funds, even a 1% increase in capital allocations contributes significantly in volume terms. Beyond deeper pockets, the region is starting to look attractive again and PE titans who have raised money for those geographies are spurring activity.

“China is back in favor with investors for the long-term potential in the market,” said Varma. “Korea has also seen heavy interest from PE funds in 2014. Australia and Japan are mature economies that have provided good deal opportunities for a few funds and will continue to do so. SE Asia is a collection of many economies at different stages of maturity but the region is seeing heavy PE interest,” he said.

In China alone, fundraising for offshore US dollar denominated funds has risen to USD 16bn in 1H 2014, as compared to USD 20bn for all of 2013, said David Brown, Greater China Private Equity Leader at PwC.

“The fundamental reason is that there is just too little equity in China for private enterprises,” Brown said. “Larger funds also see larger opportunities as the government encourages outside participation in SOEs, and entrepreneurs, who are now past retirement, are more open to selling controlling stakes,” he said.

In September, Carlyle closed its fourth Asia fund at USD 3.9bn, the second largest in the region after KKRraised a USD 6bn fund in July 2013. TPG, CVC Capital Partners and Affinity Equity Partners have also raised Asia-focused funds this year – each with dry powder of more than USD 3bn.

Following close behind their marquee counterparts, local and regional PE firms such as Southeast Asia’sCreador and Navis, India’s Multiples and Everstone, China’s Legend Capital and Japan’s Unison are just a handful of the many names announcing or closing early-stage fund raises.

Global capital, local flavor

While LPs’ appetite for the region has been whetted again, there are several distinctive and unique cultural challenges to fundraising in the region.

“Increasingly the largest global LPs are looking for the major General Partners (GPs) to whom they allocate funds to have an institutionalized approach to investing, which enables those GPs to replicate their success across different geographies including in Asia and China,” added PwC’s Brown.

Buyout funds, traditionally geared towards developed markets such as in Korea and Japan are picking up in countries such as India and China. In India, where there is a sudden surge of new funds on the horizon, LPs will look at individual track records and historic returns. SEA focused funds will tend to be smaller while markets like India and China, which can absorb larger amounts of capital, could see bigger funds.

Broadly speaking, where a fund wants to invest will have a direct impact on the LPs it taps and the size of its fund. “You can’t go to a big LP that has a minimum allocation ticket of USD 100m for a USD 300m fund,” said an India-based PE source.

LPs are also increasingly targeting larger funds, with an average size 1.5x larger YTD 2014 as compared to 2013 with money consistently flowing towards the more experienced funds, data by Bain and Company shows.


“Fundraising was a lot tougher in 2011,” said Brahmal Vasudevan, founder and CEO of South and Southeast Asia-focused fund Creador, which has surpassed its Fund II target of USD 250m by more than USD 80m. “Global markets have been more robust in 2013 and 2014. Importantly, LPs have liquidity and are willing to look at commitments for new and existing funds. Secondly, Asian-Pacific private equity has been around for a while and has demonstrated a cycle for exits and investments which will only boost interest in the region.”

A clear and lucrative exit strategy is key to determining fundraising in the region. Mergermarket data show Asian-Pacific secondary and trade portfolio exits have surged to USD 36bn YTD, compared to USD 29bn YTD 2013 and USD 33bn for all of last year. IPO exits, too, have grown astronomically to USD 35.8bn YTD, as compared to USD 3.1bn for all of 2013.

While high IRR generating exits are a compelling force driving fund-raising, a challenge comes as to where to deploy cash — especially in the face of increasing competition from SWFs such as Temasek and GIC as well as behemoths such as China’s Fosun and Ping An, which make PE-like investments using proprietary capital.

And finally, the obvious caveat, warned Creador’s Vasudevan: “When people have a lot of money and markets are sexy, there tend to be lower underwriting standards. Therefore, when investment valuations are higher, returns could be lower.”

Analytics by Chris Wong