Placement agents: Asian entries

When Charles Wan joined UK-based Rede Partners to lead its Asian expansion earlier this year, it said much about the evolution of the placement agent space. The most direct signals were around the arrival of a new player and another key personnel move (Wan was previously at Atlantic Pacific Capital) during a period of tumultuous talent reshuffling. But more fundamental shifts were on display as well.

Wan was attracted to Rede in part because of its track record – USD 86bn raised within 10 years of establishment – but also because he felt it was doing something new with a more comprehensive approach to the agent model.

The industry zeitgeist was clear: placement agents want to position themselves more as diversified, perpetual strategic advisors rather than intermediary fundraising service providers. But Rede might claim to have the jump in terms of implementation by virtue of its app for streamlining GP communications, regular virtual conferences with up to 700 LP participants, and a team dedicated to raising impact funds.

"It's about working across the spectrum and being able to plug in directly with the entire LP base, as well as the GP at the management team and its investor relations team," Wan said.

"We want to be a true partner – providing not only fundraising services but holistically doing what it takes to build GPs to the next level. That might involve a transaction or NAV [net asset value] financing service, tech-enabled real-time market feedback, or specialist advisory teams for credit or impact."

The implication is that agents unable to advise at this level, and meet the increasingly sophisticated needs of GPs with growing in-house IR teams, are being pushed down-market. Rede emphasises that its diversity of services is not about incremental revenue generation but being integral to even the largest operators. It is said to have client managers with funds as large as USD 18bn.

Building out

The push toward this model will necessarily come with a change in economics. Fees for adjacent project management and advisory services will never match those for raising primary capital, but for many agents, an increasing focus on providing support on secondaries transactions already has.

Singapore-headquartered Thrive Alternatives, for example, commonly generates more income from secondary capital than primary capital in certain GP relationships, although this does not reflect its overall economics. The firm recruited secondaries specialist Dominik Woessner, formerly of Lazard, specifically to lead this effort.

It extended a flurry of secondaries people moves regionally, with Patrick No joining Lazard from Credit Suisse, Shane Gong joining Evercore from CPE Capital, and Park Hill hiring Jolie Chow and Ronnie Shen from Morgan Stanley and Lexington Partners, respectively.

However, Thrive, which was set up last year as a reunion of former Eaton Partners professionals, sees itself as reversing the turnover trend. Rather than growing through incremental poaching, the firm started out with a 20-strong team that wanted to build something together.

This set-up is intended to promote cohesion, but the hope is it will also strengthen Thrive's credentials as a differentiated, holistic service provider. In this sense, having a big staff from day one represents a calculated risk. Thrive now has 26 professionals across Singapore, Hong Kong, China, Japan, Korea, and Australia, with an impermanent presence in Taiwan.

"You can run lean and pick up a few mandates that are enough to survive, but that's not a scalable model. We've seen advisors stay small and disappear. We wanted to compete with the big guys, and the only way to do that is to have the resources," said Jackson Chan, Thrive's co-founder and CEO.

"In addition, you need resources to be a large Asia specialist and cover the whole region, not just the usual suspects but tier-two and tier-three people in local languages. To cover family offices well, you need a local presence. These are not people you can cold call. You need to be there for them."

Thrive is also experimenting with a technology offering. Its core product, Drive, aims to help GPs organise and analyse LP relationships and be more proactive in outreach activities such as setting up meetings. The app is currently being piloted internally and prepared for an external launch. 

Flight to quality

There is more to these offerings than an attempt to deepen relationships with GPs; there is a flight to quality among LPs that suggests a growing need for such ancillary services. Several placement agents told AVCJ that even the most established managers were experiencing fundraising challenges in the current environment. They include sizable players with in-house IR teams.

"In the current market, raising capital from new relationships will be very skewed towards GPs with a brand name, or have been around the region and people know them," said Thomas Yu, a managing director at Thrive. "It's going to be like that for the next 6-12 months, or even 18 months because the market is so congested. If we work with emerging managers, we must take a much longer-term view on the business partnership."

The idea that agents must be more selective in taking on new mandates is pronounced in Asia, in part due to lingering pandemic travel restrictions. Some longstanding advisors observe that US and European LPs have not been responsive in terms of following up on initial Zoom introductions, finding little need to pursue new, faraway relationships when there are plenty of opportunities in their own backyards.

This has been compounded by the pandemic-driven investment boom, which contributed to an ever-shortening fundraising cycle by speeding up deployment. Consequently, the ability of managers to reach first closes in a timely and efficient manner has been placed under the microscope – and wariness among placement agents about taking on new mandates has heightened.

"LPs across the board are seeing more of their existing relationships back in the market this year than they would have ordinarily budgeted for. That's creating a time management headache for people, and this is on the back of record fundraising last year," said Thomas Swain, a Hong Kong-based director with Credit Suisse's private funds group. "So, the money is there, but there's just a bit of indigestion."

Mercury Capital Advisors is among those that has noticed a shift toward a top-heavy portfolio in Asia, with most of its private equity relationships now limited to funds of USD 1bn-USD 3bn in size. The firm, which was acquired by Bahrain-headquartered Investcorp in 2019, aims to achieve diversification more through sector specialists, real estate, or credit. Venture is not high on the menu.

"The biggest difference for us in Asia is the pipeline, some of which will roll off and not necessarily be replaced. We're still very committed to Asia, but the bar is exceptionally high right now," said Enrique Cuan, a co-founder and managing partner at Mercury responsible for Asia.

"You have to look past the immediate challenges and take a strategic view about the future opportunity. We're fortunate to have a strong parent backing us, but some of the smaller independent agents in Asia could find the near term extremely difficult."

Much of this is geopolitical. Vincent Ng, a partner at Atlantic Pacific, described one instance where an Asian LP with a longstanding GP relationship rejected a recent fund commitment because one of the existing portfolio companies had marginal, indirect supply chain exposure to Russia.

"It's anecdotal, but we're seeing more and more of that, even with long-term existing relationships. It's a function of everything from the specifics of the scenario and GPs reducing their number of relationships to the musical chairs among LPs," said Ng.

"The uncertainty in re-up conversations has increased multiple-fold in the past 12-18 months. If you don't have a sufficiently diversified LP base, political or sectoral issues could have a material impact on your re-up capability."

Advances, retreats

Much has been made of the new entrants into Asia – shortly prior to Rede, US-based Blue Owl Capital set up a Hong Kong base by acquiring local placement agent Ascentium. But it is not difficult to spot retractions and holding patterns among global actors in the region. Mercury, for one, is likely to hold steady with about four funds in Asia and only one additional mandate coming in the next six months.

US-headquartered Capstone Partners notes that while growth in Asia remains generally stronger than in its core North American and European markets, there have been other checks. Good market dynamics in India, for example, are observed to have thwarted some placement agents' long-planned secondaries activity by setting up more straightforward liquidity events for GPs.

Outbound Asian LP capital, meanwhile, is also hitting geopolitical headwinds. "When I promote a European GP the first question is what about the war in Ukraine. If I promote a US manager, the first question is what about the increase in interest rates," Alexandre Schmitz, Capstone's head of Asia, said. "Most of the LPs, particularly in North Asia, are extremely conservative."

China's closed borders, regulatory crackdowns, and diplomatic sensitivities have put it at the epicentre of most of the issues driving placement agent agendas. Global LPs have pressed pause on the market despite its long-term promise, and agents have for the most part followed suit. There are hopes it is darkest before dawn.

"We're definitely at the bottom and perhaps seeing early signs of it picking up later this year," said Nicole Su, a managing partner at China-focused agent Jadehouse Capital.

"Some of the global allocators we talk to have been very interested in public markets in China and Hong Kong, which is always a leading factor for private markets. From that perspective, there could be an improvement in that sense in 6-12 months' time."

Since Su and fellow managing partner Rachel Kou set up Jadehouse in 2020, the US dollar-to-renminbi ratio of their fundraising work has shifted from 2:1 to 1:1. Deal flow of about two funds a year has remained steady, however, with hard-tech areas such as semiconductors, electric vehicles, and energy emerging as among the more stable themes.

Jadehouse believes it has continued to thrive as a small operation due to its niche focus. "Most of the traditional placement agents fly into Shanghai or Beijing 4-5 times a year. We're in the market. We know the GPs and interact with them every day. We understand their deals better," Kou said.

A different partnership

There is reason to believe that the trend toward holistic advisory in agent offerings could re-open the China opportunity for global players as well. For one global agent active in the country, this approach is about being attuned to investor jitters and a proponent of realism in expectations.

"China funds have not suddenly become fundamentally un-investable, but you have to make sure that you understand the environment in which you are about to fundraise," he said. "If you show no empathy with the LP community and don't set appropriate timing, you won't get momentum to a first closing and fall flat on your face."

UK-headquartered Asante Capital is another case in point. The traditionally developed markets-focused agent has recently ramped up its Asia presence in Hong Kong almost on par with its North American and European footprints.

Since entering the region in 2015, about USD 4bn has been raised across 12 GP relationships. Of that, eight managers and USD 2.8bn has come since the end of 2019. There is a good chance of expanding the firm's physical Asia presence in the medium term.

Much of this can be attributed to a substitution game in LP interest, with Asian and Middle Eastern LPs stepping up to the plate in place of North American investors. But it has also required a leap of faith.

Asante's interpretation of holistic agent services involves alignment in terms of making LP commitments in all its GP relationships. None of its staff are remunerated by dollars brought into the fund; they're remunerated based on the success of the funds themselves.

This philosophy makes China more doable, if only because it incentivises agents to lean into a limited universe of LP appetite and gives them more exposure to the market's undeniable long-term upside. Asante pursued its first mandate in the country in 2015 with Nio Capital and has since closed two funds with the GP while adding three more relationships, including a brand-name manager and specialists in healthcare and deep tech.

"I understand the short-term view of some of our peers not wanting to do another fund in China, but only a few years ago China was already eclipsing the US in terms or capital raised in private markets, including renminbi, and we expect this to come back in the mid-term" Ricardo Felix, Asante's head of Asia, said.

"So, the perspective we have is to build core relationships now with top managers despite the market being tougher. That sets us up to build strong partnerships together for the long term, which has always been our model. I'm not saying we're going to take on much more in China just yet, but we intend to continue to build up our core relationships. The same goes for the rest of our Asia Pacific strategy."

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• Topics
• Greater China
• South Asia
• Southeast Asia
• Fundraising
• Advisory
• Asia
• placement
• Fundraising
• Credit Suisse
• Mercury Capital Advisors
• Jadehouse Capital
• Atlantic Pacific Capital
• Rede Partners
• Capstone Partners
• Thrive Alternatives
• Eaton Partners