The fundraising success story
Baring Private Equity Asia ended a global slump on fundraising when it closed its fifth fund on $2.46 billion, 60% more than its predecessor, in less than six months. AVCJ speaks with the Managing Partner on the renewed institutional interest in Asian private equity and the challenges he sees in investing the capital.
Q: You've managed to raise a lot of capital in such a short period of time. How would you describe the experience this time?
A: : In talking to investors last year, there was clearly a high level of interest in Asian private equity . However, now that Asian private equity is more established as an industry and asset class, Investors were less interested in the macro story, and more focused on track records and established groups - teams that have been tested in difficult markets and have come thru with reasonable returns.
Q: Who are the investors in your newest fund?
A: We had essentially all of our major investors from the last fund, such as Pennsylvania Public School Employees Retirement System, Universities Superannuation Scheme (USS) and Pantheon, re-up on this one. We also attracted a number of new investors including the CPP Investment Board, OPERS (Ohio), Illinois Teachers and State of Oregon.
Q: Many of your peers have mentioned that Asian investors have become an increasingly important in the past few years. Do you see a lot more of your new investor base coming from Asia?
A: We noticed that as well. Approximately 30% of our capital came from Asia, which was more than last time. The mix is different too. In the past it was more from the fund of funds but this time it was sovereign wealth funds and national pension type of investors, which we haven't had in the past. However, the US still has the biggest pool of capital for private equity. North American investors account for over 50% of our fund.
Q: With a much larger fund than before, will your firm shift its focus to larger-scale deals?
A: Our strategy will remain the same, although there might be an incremental increase in deal size; but generally we want to do a balanced portfolio of 50:50 between growth equity deals and buyouts. That is the same strategy that has worked for us in the past and where we see ourselves going forward.
Q: In which market do you see the most potential given that strategy?
A: China is still the most interesting and the largest [market] for investments. Company wise, there are a lot of great companies with great management teams. However, that is only half the story, the other half is how much you have to pay for that growth. I wouldn't be surprised to see us looking at a broader range of markets to find better value.
Q: Do you see much competition from the RMB funds?
A: We haven't been competing with them head to head but we've certainly been reading a lot about them. It seems like there has been a lot of talk and activity and if everything happens, then it would be very disruptive to the market. For the time being, the RMB market is fairly nascent and most of the players that have been set up are small and new. It is very fragmented still.
Q: Any plans to add more professionals to invest the capital?
A: In the last three years, we have doubled the number of investment professionals to fifty. We will continue to add, and in particular we are looking to grow on the operations side. We are looking to bring in more operational and sector specialists.
Q: What is your biggest worry about the Asian private equity industry?
A: The single biggest issue is the amount of liquidity and capital available in the market and how that affects valuations. Other than that, it is the usual issue you deal with: competition at the portfolio company level and what that does to margins in the industry you invest in. I think inflation and the likelihood of increasing interest rates will be a worry. It is a worry for existing portfolio companies rather than new investments. For new investments, you want an environment of uncertainly which makes it more difficult to raise capital from debt providers and make equity more attractive.
Q: Any exits planned for this year?
A: We are working on a number of exits this year. We are planning a couple of IPOs and trade sales. We'll see how the markets hold up.
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