Asia’s LP landscape

JAPAN

Three to watch: Japan Post Bank, Pension Fund Association, Development Bank of Japan

Japan's Government Pension Investment Fund (GPIF) is the proverbial whale: a move into PE could trigger a flood of public pension money entering the asset class. However, so far the group has only made two investments and has yet to roll out a program geared to making regular allocations. For GPs currently fundraising, is it worth doing a meeting?

As one placement agent puts it: "If we are doing a road show for a large enough manager and have an extra slot, then we will reach out. They generally are willing to do meetings because they are intellectually curious."

Japan Post Bank is the other domestic giant, with approximately $2 trillion in assets and a private equity program that officially launched in April. The model portfolio - likely to account for a low single-digit share of total assets across all categories of alternatives - is described as globally diversified, with space for small and mid-cap managers as well as large buyout funds. Access to Japan Post Bank is said to be marshaled by four local asset managers: Nissay, DBJ, Tokio Marine and Sumitomo Trust.

These asset managers - others include AI Capital, Nomura and Mitsubishi UFJ Trust - serve as gatekeepers for most of Japan's pension fund money. DBJ is arguably the most interesting of the group: it manages capital for its parent bank and also represents many of the country's regional banks, which are increasingly willing to make commitments of $5-10 million to private equity, although primarily to domestic managers. It was reported last year that DBJ had agreed to work with Chiba Bank and Shizuoka Bank on an offshore private equity program, but so far this represents the exception rather than the rule.

More productive meetings for international private equity firms may come with the Pension Fund Association (PFA), which has around JPY12.7 trillion in assets and a 5% allocation to private equity, as well as a raft of domestic insurance companies and larger banks. The likes of Nippon Life, Dai-ichi Life, Daido Life, Sompo Japan Nipponkoa, Norinchukin Bank and Sumitomo Mitsui Banking Corporation are all relatively seasoned investors in the asset class. Equity checks tend to be in the $25-50 million range.

All told, there are said to be 10 active LPs in Japan that make several new commitments each year, and another 10 that are either less consistent of focus on re-ups.

KOREA

Three to watch: National Pension Service, Korea Investment Corporation, Korea Teachers' Credit Union

The National Pension Service (NPS) and Korea Investment Corporation (KIC) are the established tier-one members of Korea's LP community: the former had KRW512 trillion ($442 billion) under management at the end of 2015, including KRW9.1 trillion in private equity; the latter had an international portfolio of $91.8 billion, with $3.9 billion in PE.

However, there is an increasingly active second tier of investors largely unhampered by the minimum check size requirements that restrict NPS to mega funds and fund-of- funds (a $5 billion US middle market fund is seen as a maybe; a similar vehicle of $1.5 billion has no chance). In Korea Teachers' Credit Union, Korea Teachers' Pension, Korea Post, the Public Officials Benefit Association (POBA) there is a subset of pension funds that are active participants in international alternatives, making commitments of $40 million or more. The caveat is whether they want exposure to traditional private equity.

For example, POBA said in March that it would double its allocation to offshore private equity funds in 2016 to $200 million. Six months later it announced a $120 million allocation to three US mezzanine funds, confirming Korean LPs' general preference for yield-generating assets such as credit and private debt.

A particular challenge in Korea is the request for proposal (RFP) culture that permeates many of the institutional investors. These often come with quite specific mandates, a short turnaround time, and a request that documentation be submitted in Korean. Investor relations professionals stress the importance of reaching out to institutions in advance, establishing a degree of familiarity, but once the RFP is issued it is necessary to snap back into a formal process.

Most placement agents claim to have 20 or so active relationships, which may also include asset managers such as Samsung and various insurance companies.

CHINA

Three to watch: China Investment Corporation, SAFE Investment, Ping An Insurance

It is only a matter of time before Chinese insurers become significant players in international private equity - much as they have in the asset class domestically - but it is unclear when that time will be. Fifty or so insurance companies could feasibly make allocations to offshore funds, but for now international GPs are focused on a small handful: the likes of China Life, Ping An Insurance and China Reinsurance.

While these groups have a tendency to back global brand names, some industry participants say they see a nascent but growing interest in middle market managers. However, the immediate question is whether insurance companies have dollars at their disposal: with the imposition of tighter foreign exchange controls earlier this year, international investment plans have been scaled back. The workaround is using offshore capital to make fund commitments.

The impact is expected to be temporary (it is worth noting that insurance companies have still managed to make some offshore direct property investments) and teams are still being assembled with offshore private equity in mind. "When they do get the greenlight to invest offshore, it will be a deep pool of capital," says one GP.

The two sovereign wealth funds - China Investment Corporation (CIC) and the investment unit of State Administration of Foreign Exchange (SAFE) - are still active, but arguably not as profligate as before. While CIC was obliged to make frequent commitments in its early years in order to build out the private equity portfolio, now the pace of deployment has slowed. The fund is also focusing more on overseas direct investments.

SAFE's portfolio has also matured but the pressure point is foreign exchange controls. Having been willing to write checks of $250-500 million 18 months ago, the group has since reduced its minimum check size to $100-200 million, according to one source. Hamilton Lane serves as gatekeeper to SAFE, handling all funds below a certain threshold.

Separately, there is increasing interest in Chinese high net worth capital, with wealth management players such as Noah Holdings and CreditEase offering their own offshore fund-of-fund and co-investment products as well providing third-party distribution services. Both have offices in Hong Kong and that is the best place to reach their international divisions.

HONG KONG & TAIWAN

Three to watch: Hong Kong Monetary Authority, Cathay Life, Fubon Life

The Hong Kong Monetary Authority (HKMA) is in the upper echelon of Asian private equity investors, comfortable writing checks of $200 million and above. It is responsible for the HK$3.42 trillion ($441 billion) Exchange Fund, which had HK$91.3 billion deployed in PE at the end of 2015, up from HK$80.5 billion in 2014.

According to industry participants, HKMA is increasingly active in managing its private equity interests. Previously, Hamilton Lane, would have covered any fund up to $3 billion in size, but the threshold is said to have been lowered.

While Hong Kong serves as a regional base for many global institutional investors, fund-of-funds and gatekeepers, the rest of pure domestic LP community is relatively thin. The Hong Kong Jockey Club has a small PE allocation, and then there is scattering of insurance companies (FWD is among those said to be ramping up its activity), private banks and family offices. The latter two categories may on occasion generate a sizeable commitment, but infrequently.

Six insurers make up the bulwark of Taiwan's LP community. Cathay Life and Fubon Life are the poster children, having been in the market for a number of years, built up strong internal teams, and established deep portfolios. Nanshan Life previously joined them at the head of this group, but it has been less active in recent years.

While insurers' exposure to private equity and hedge funds is capped at 2% of total assets, they are still able to write checks of $20-50 million. They are also only allowed to invest in funds raised by PE firms registered in member nations of the Organization for Economic Co-operation and Development (OECD), which means there is a bias towards North America and Europe.

Much is expected of Taiwan's Bureau of Labor Fund (BLF). The group is still dealing with the after-effects of an industry restructuring in 2014, but with about $80 billion in pension and insurance assets to draw upon, it will be in a position to make sizeable commitments. Real estate and infrastructure are likely to be the initial beneficiaries within the alternatives space.

SINGAPORE

Three to watch: GIC Private, Temasek Holdings, Bank of Singapore

While GIC Private is an obvious target for private equity firms, the best point of contact might not be in Singapore. The sovereign wealth fund has a network of international offices that handle its interests in different geographies, so a mid-market US GP seeking an allocation should arrange an appointment in New York.

Other Asian institutional investors have established a presence in other markets but the implication is that personnel and decision-making power is not so decentralized. For example, several placement agents and investor relations executives say it is still worth visiting Temasek Holdings in Singapore.

Below GIC and Temasek - the former is estimated to have more than $300 billion in assets, the latter had $179 billion as of March - the market is relatively shallow, although arguably not to the extent of Hong Kong. Two insurance companies, Great Eastern Life and NTUC Income, are active in PE as are a handful of endowments. The largest of these, the National University of Singapore, had S$3.12 billion ($2.2 billion) in assets as of March 2015 and is known for writing checks of up to $20 million.

There are also a couple of asset managers, while several placement agents highlight the growing prominence of high net worth individuals, accessed through family offices or private banks. The likes of Bank of Singapore and Standard Chartered are said to have previously made commitments of up to $100 million.

SOUTHEAST ASIA

Three to watch: Employees' Provident Fund, Brunei Investment Agency, KWAP

The Brunei Investment Agency BIA) and the country's Ministry of Finance - which is responsible for managing public service pension schemes - are the ultimate outliers among Southeast Asian institutional investors. They have been making commitments to private equity since the late 1980s and are generally viewed as conservative, reliable and a ready source of $20-30 million allocations.

The international private equity programs of most other groups in Southeast Asia ex-Singapore can boast nothing like this longevity. KWAP and Khazanah Nasional in Malaysia and Thailand's Government Pension Fund (GPF) all represent possible targets for GPs but investor relations executives say they do not approach these groups with a huge degree of confidence.

Malaysia's Employees' Provident Fund, meanwhile, is unquestionably on the rise. The group had MYR684.5 billion ($162.7 billion) in assets as of year-end 2015 and has announced plans to increase its alternatives allocation from 4% to 8-10% over the next five to seven years.

EPF started investing in emerging markets private equity in 2005 and manages those relationships internally. Exposure to developed markets has built up over the last five years through four separate account mandates awarded to Goldman Sachs, Hamilton Lane, HarbourVest Partners and LGT Capital Partners.

AUSTRALIA

Three to watch: Future Fund, MLC Private Equity, QIC

After Future Fund, it could be argued that most important points of contact in Australia's LP community are StepStone Group and Hamilton Lane, such is the intermediated nature of the market. The advisor roster also includes the likes of Quentin Ayers, ROC Partners and Jana. Another local player, Frontier Advisors, is understood to have cut back on its private equity coverage.

A combination of consolidation within the superannuation industry and an intense focus on fees means that fewer groups are active in private equity than a decade ago. As a result of this consolidation, continued inflows of contributions from members and a general desire to reduce the number of GP relationships, the superannuation funds that do look at private equity are willing to write sizeable checks. AustralianSuper, for example, is said to want to commit at least $200 million per fund.

Future Fund, QIC and MLC Private Equity have traditionally been the most international in their outlook, with offices and investment professionals located overseas. Other targets for offshore GPs typically include HESTA, Telstra Super, First State Super and AustralianSuper, as well as asset managers such as Continuity Capital and Perpetual.

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• Topics
• LPs
• Fundraising
• Greater China
• Southeast Asia
• North Asia
• Australasia
• China
• Japan
• South Korea
• Singapore
• Malaysia
• Asia
• Australia