The case for an LP presence in Asia

Exercising one's fiduciary duties can therefore be a challenge, which is why many pension funds delegate responsibilities to intermediaries such as advisers and fund-of-funds. There might only be a handful of staff overseeing the private equity program globally - after all, in a lot of cases it accounts for less than 10% of the overall pot - and one of these investment professionals comes through Asia just once or twice a year.

At a time when LPs are looking to maintain a smaller number of deeper GP relationships, it pays to spend time with your managers. And it can be beneficial for the manager as well. It is not unknown for sellers - or their regulatory overlords - to demand where the money is ultimately coming from due to concerns about a GP's commitment to a deal. Bringing an LP along to the meeting might help.

Perhaps most importantly, any LP that wants to get co-investment exposure needs to spend time on the ground.

Yes, it is possible to conclude that if proper due diligence has been conducted on a manager then the manager can be trusted to perform appropriate due diligence on an asset. But is it a wise conclusion? An LP's exposure to individual transactions through a fund structure might only be $10 million apiece; stick $50 million into one of those companies as a co-investor and the risk is considerably higher.

Exercising proper fiduciary duty in these situations surely involves putting boots on the ground. And if they are going to arise on a regular basis, does it make sense to fly people from headquarters to Asia and back to meet with advisors, conduct site visits and file the reports that play a key role in the LP's decision whether or not to proceed?

Canada Pension Plan Investment Board (CPPIB) was the first North American public pension fund to establish a sizeable presence in Hong Kong from which to coordinate activities across Asia. Sources familiar with CPPIB's strategy previously told AVCJ that the fund isn't as an aggressive direct or co-investor as many believe: infrastructure aside, it has completed just a handful of investments alongside GPs.

This may change over time but the initial driving factors were to show a commitment to the region and effectively manage risk. CPPIB is known to have some sizeable LP positions in Asia-focused funds.

Now Ontario Teachers' Pension Plan (OTPP) is following suit. Last week the fund said it had been awarded securities and asset management licenses to operate in Hong Kong and would now move ahead with plans to staff up its new office in the city. Approximately six investment professionals are expected to be put in place to begin with - from the equities and infrastructure teams as well as from Teachers' Private Capital - and an official launch is scheduled for September.

OTPP has expressed its desire to pursue direct and co-investments in both word and deed. In the past 12 months, the fund has paid A$2.3 billion for a 50-year lease on Sydney Desalination Plant alongside Australian player Hastings Fund Management; bought a 9.9% stake in South Korea's Kyobo Life Insurance for $398 million; taken a significant minority interest in Hong Kong-listed Paul Y. Engineering for about $130 million; and contributed just over one third of Chinese online retailer 360Buy's $700 million round of Series E funding.

An Air Canada flight leaves Toronto Pearson International Airport at 10 a.m. on Monday and arrives in Hong Kong about 15 hours later, at 1.15 p.m. the following afternoon. The return leg departs Hong Kong on the Friday at 3.10 p.m. and touches down in Toronto three hours later. Having someone make this trip every few weeks to diligence deals doesn't necessarily represent a sound allocation of resources.

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• Topics
• LPs
• Asia
• LPs
• OTPP
• CPPIB