Asia, Middle East LPs help Affinity to $3.8b close on Fund IV

The fundraising process has taken approximately 15 months but the final few weeks were spent negotiating an increase in the hard cap with LPs. The GP initially limited itself to $3.5 billion but added another $300 million in response to strong demand for allocations.

"The private equity LP base is becoming more evenly distributed," a source familiar with the fundraising told AVCJ. "Previously most Asian funds relied on US investors for 70% of their money, Europe was 20-30% and Asia was at most 10%."

Asian and Middle East investors - principally sovereign wealth funds - have become more prominent in large-cap funds globally but the rebalancing is arguably particularly stark in the case of Affinity.

North American LPs remain the fund's single largest constituency but the share has fallen to 38% from around 50% in Fund III, while Europe has dropped to 23% from 36%. Asian investors accounted for 10% of Fund III but this has risen to 26% in Fund IV. The Middle East share has jumped from 5% to 13%.

The other significant change is in the fund-of-funds share, which is understood to have fallen by more than half on Fund III to around 10%. Financial institutions also feature less prominently as the implications of the Volcker Rule and the Basel III regulations come to bear.

The overall number of LPs has not changed much, despite the fund itself more than one third bigger than Affinity Asia Pacific Fund III, which reached a final close of $2.8 billion in 2007.

"LPs are concentrating their firepower, doing fewer funds but writing bigger checks," the source added. "It's like there are 5% haves and 95% have nots."

This is evidenced in the diverging fortunes of Asia's large pan-regional GPs. While the likes of Affinity, KKR and MBK Partners have moved through the fundraising process reasonably swiftly, TPG Capital and The Carlyle Group are among those taking longer than expected to attract capital for their latest Asia vehicles, in some cases resulting in targets being revised downwards.

Fundraising across the region has been weak. According to AVCJ Research, Asia-focused funds received commitments of $41.7 billion in 2013, the lowest annual total in four years. The 2012 total was $54.2 billion.

Affinity reached a first close of $1.5 billion in March 2013 with a second close of $2.5 billion coming four months later. Investors that have disclosed involvement in Fund IV include Washington State Investment Board, Montana State Investment Board, Maine Public Employees' Retirement System and New Mexico State Investment Council.

The LP base for Fund III also featured the likes of California Public Employees' Retirement System (CalPERS) and California State Teachers' Retirement System (CalSTRS).

Affinity has so far completed one investment from the new fund, paying $239 million for a 52.6% in Loen Entertainment, a South Korean digital music platform that operates MelOn, the country's equivalent of iTunes. The deal came about after SK Telecom - like many Korean conglomerates - was put under pressure to divest non-core assets.

The more recent China dairy joint venture with Beijing Capital Agribusiness Group - also known as Sunlon - was the last deal from Fund III.

The private equity firm is also in exclusive negotiations to buy Australia's Retail Zoo, owner of the Boost Juice health drink franchise. The company is 70%-owned by The Riverside Company.

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• Topics
• Fundraising
• Buyout
• LPs
• LPs
• Asia
• Affinity Equity Partners
• Fundraising
• buyout