LP interview: Adams Street Partners

For Yar-Ping Soo, head of the Asian investment team at Adams Street Partners, a recent visit by the firm's US managers showed the value of the fund-of-funds model it pioneered in the 1980s.

"We brought them out in June, and we met 10 funds that were new names to them - then in two weeks' time our guys on the ground unearthed another 10 names, from very qualified people," says Soo. "So the market is so dynamic, you really have to be there. And if you are not there, some of the people who are in the early stage of fundraising you wouldn't even know about."

Adams Street's knowledge of local markets is what keeps the fund-of-funds an essential part of its approach, even as it continues to innovate its investment strategy. The firm sees itself as a liaison that can link its own LPs with funds in the Asian markets they find most exciting, without having to establish their own local offices and swallow the costs that come with them.

While the fund-of-funds model is seen as outdated by many globally, Adams Street expects it to feature significantly in the future, although circumstances may require a change of approach as needed. The firm expects growing maturity in Asia's PE market to offer rewards to investors that focus on quality, and where possible, take advantage of their experience.

Asia has become a significant portion of Adams Street's portfolio since the firm made its first investment here in 2001. The region now represents about 15% of Adams Street's $28 billion in global assets under management - which includes all elements of its private equity strategy, not just fund-of-funds.

Global game

Rather than maintain distinct funds for individual markets, investments are made on a global basis, giving equal weight to all opportunities. "Other Asia funds have to have a manager in every country in Asia, or every major country," Soo explains. "We don't have what we call that plant-the-flag mentality. Each one has to be brought up to the table, we discuss it with the global group, and we get questions like, ‘Should we do this or should we do XYZ fund in Norway?' for example."

The lack of a guaranteed allocation might seem to put the Asia team at a disadvantage, since GPs from emerging economies are judged against managers from mature economies that may be far more experienced. However, Adams Street's managers see another side to the story in the potentially far greater growth opportunities in emerging markets, and local funds are best positioned to take advantage of these.

China and India make for an instructive example. Adams Street has supported a number of funds in these markets, ranging from China-based CMC Capital Partners' first US dollar-denominated fund, which closed in 2014 at $350 million, to the $510 million vintage sixth fund of India's ChrysCapital, raised in 2012. The scale that can be found in China and India dwarfs that available nearly everywhere else, and is an incentive to the firm to support managers there.

In some ways relatively less-developed PE markets can be an asset as well, since they offer more room for managers to maneuver: deal processes may be less competitive, making it easier to get favorable terms, and reducing the likelihood of disruption. In addition, talented managers find it easier to stand out in a playing field that is less sophisticated overall.

"There is a real difference that a qualified, experienced PE group can make to a company, growing it and building up the management," Soo says. "I think there is a lot of improvement and inefficiency that PE can tap for these regions, which will give rise to attractive investment opportunities."

Shared experience

Part of Adams Street's strategy is to recognize GPs that do have the potential to become strong players in the local scene and support them in their growth. A financial commitment is only the first step in the process - the firm believes that it must justify its presence to GPs just like it had to earn its investment in the first place.

To that end, Adams Street tries to bring to bear the benefit of its experience in global private equity. It provides to GPs data on specific industries collected over decades spent backing other funds. In one recent case, Adams Street was concerned that a GP was investing too quickly. The firm compiled a report comparing investment pace to returns for its previous funds and shared it with the GP to back up its advice to slow down on deploying capital.

Adams Street also seeks to connect its GPs in different markets so that they can collaborate on investments. The firm organizes GP outings to bring managers from Asia to the US, and vice versa, allowing each to get a sense of the opportunities available in the other's home area - though it does not push this option for all firms.

"We don't want them to overextend themselves," Soo explains. "If there are good opportunities in Asia, in the home country, do you really need to go 5,000 miles away to buy another company that is domiciled and run out of another city in another country?"

Co-investment is becoming an increasingly important part of Adams Street's activities as well. Though the firm's co-investment fund has so far invested mainly in the US and Europe, the Asia team has begun to utilize it as well - starting in Australia, due to its similarity to other mature PE markets, but moving to India recently as well.

The ongoing evolution in Asian private equity does not eliminate the need for experienced guidance among new managers. As such, Adams Street still sees a place for a veteran investor so long as talented managers continue to emerge.

"We were quite often the first institutional investor in many of the firms that are today franchise names. But when we backed them they were on Fund I, or they may not even know what an LP looked like," says Soo. "We do hope to support those future franchises, just as we supported the franchise names in the past. That would be one of the greatest contributions that we could do for the PE market in Asia."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Fund-of-funds
• LPs
• Fundraising
• China
• Adams Street Partners