LP interview: Adveq

Adveq was founded in Switzerland, but its fund-of-funds business began 20 years ago in the US with a technology program intended to back VC managers. One year later, the scope of the program was expanded, resulting in the firm’s first fund commitment to an Asia-focused GP. It was the start of movement that has seen around $600 million raised for three Asia-dedicated funds, with still more capital deployed in the region from global vehicles.

“We started our fund-of-funds investments in VC funds, so we have a strong VC angle in our DNA,” says Jun Qian, executive director and head of China investment at Adveq. “We also have a strong presence in China enabling us to go in deep, which is quite different from other international counterparts. As such, we are well-informed when new opportunities arise in terms of fund investments or co-investments.”

Adveq currently has about $7 billion in total assets under management (AUM) globally across primary, secondary and co-investment strategies. While the Asia-dedicated funds have not increased significantly in size – the most recent closed in 2011 at around $200 million – the firm continues to channel capital into the region from its global vehicles, including co-investment funds and separate accounts. Between $100 million and $200 million is deployed each year.

We invest in a fund because we think the GP has a future - Jun Qian

China accounts for 50-55% of the Asia allocation, with 35-40% going to India and the remaining 10% earmarked for other Asian countries. Approximately 30% of the region-wide total is invested in venture capital, predominately in China and India.

Investments are made by a 15-strong team based out of Beijing, Shanghai and Hong Kong (Beijing was the first Asian office, opening in 2008). They are responsible for 40 GP relationships, 20 of which are in China. Individual funds receive commitments of around $20 million, drawn from the Asian funds and from other pockets of capital.

Success factors

When conducting due diligence on managers in China, Adveq adopt a top-down approach in order to evaluate whether a GP can satisfy several “success factors.” These are: a convincing strategy, including clearly defined target industries and investment stages; relationships with established platforms; reliable internal support systems; and a strong track record.

By seeing positives in relationships with established platforms, Adveq is to a certain extent signaling its approval of spin-out GPs that maintain close ties with their former parent companies. Qian sees similarities between Japan and China in this context, and it doesn’t have to be a red flag – provided the structure is well-designed and the parent’s platform can offer significant value to the GP in terms of deal sourcing and exits.

This is not the only way Adveq goes against the grain in China: of the four success factors, track record is not ranked above all others. “In China, we don’t think a GP’s track record is the most important part because the track record reflects the past,” Qian explains. “We invest in a fund because we think the GP has a future.”

As for renminbi-denominated funds, he believes it is only a matter of time – 3-5 years – before the removal of currency convertibility restrictions breaks down the wall between US dollar and renminbi vehicles, which are currently in different parts of the market. As such, one of Adveq’s strategies is to back high-quality firms that have made their names in the renminbi space and are trying to raise their first US dollar funds.

Maison Capital, the most recent addition to the firm’s portfolio, fits this profile. The growth-focused GP was founded in 2004 and launched a US dollar fund last year, targeting $200 million. Qian praises Maison’s strong internal systems, notably incentive-linked performance review programs that cover staff at all levels. He sees this as essential to retaining talent – a key consideration in China, and in the renminbi fund space particularly, where there is a tendency for people to move around frequently. 

“We have known them [Maison] for more than five years, since they started raising their second renminbi fund. We had a lot of discussions on their fund strategy and got to know them well. They have an investment thesis and internal systems that we like, even though they are a traditional renminbi fund manager,” Qian says.

The nature of Adveq’s primary exposure – in addition to backing emerging US dollar managers, it also targets some smaller sector-focused managers in the healthcare space – dictates the make-up of its co-investment and secondaries deal flow. Rather than participating in competitive processes or chasing GPs in search of transactions, the firm relies on friendly and collaborative approach.

“In many cases, China-focused GPs come to us and offer secondary opportunities as a means of building up a relationship with us because they want us to be an LP in their next fund,” says Qian. “We don’t do large secondary deals because everything is proprietary, sourced from within our network.”

The bigger picture

Adveq’s strategy in China is largely replicated in India and across Asia. The India portfolio is venture capital heavy with names like Mayfield and IDG Ventures, and there have also been co-investments in various start-ups. For example, towards the end of last year, Adveq participated in a funding round for baby and child-focused retailer FirstCry, a longstanding IDG portfolio company.

The firm’s own LP base includes pension funds, insurers, family offices and other financial institutions in Europe, the US and Asia. For Asia specifically, it is seeing more interest from global corporate pension funds, especially among those tied to companies that have business operations in the region. These kinds of clients are a potential source of separate account mandates.

 “From our global AUM point of view, separate accounts have become a more and more important part, as LPs have become more sophisticated,” adds Qian. “Instead of being a general LP in our main fund, they want to pursue a particular strategy and so they request for tailor-made services,” adds Qian.  

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• Topics
• Greater China
• LPs
• Fundraising
• Adveq Management AG
• Asia
• China
• India