LPs sharpen focus on active investment in Asia – AVCJ Forum

Brooks Zug, senior managing director at Harbourvest Partners, reflected on a career in private equity spanning more than 30 years, noting the industry’s cyclic nature and how firms can prepare for an expected economic recession in the next few years. He said that LPs would need to improve their focus on GP value-add efforts as well as the more subtle drivers of growth and investment success.

“You have to understand which individuals within that organization are the ones that made it happen,” Zug said. “And then you have to make sure that those are people who are committed to stay with this organization indefinitely.”

Zug added that China would be the biggest driver of growth and that his firm’s global portfolio could be as much as 40% Chinese within the next 10-15 years. He identified rising company valuations and low availability of buyout opportunities as key barriers.

Rakesh Saraf, head of private investments at Alberta Teachers’ Retirement Fund, said, however, that he expected Asia’s private equity industry to be primarily a buyout market within 10 years. As LPs become more active direct investors in this environment, he highlighted a need for specialized internal staff.

“An institution that wants to have a significant proportion of its book in co-investment needs to have a dedicated team,” Saraf said. “If an LP can say, ‘I have guys with direct experience that will work with you on a co-investment,' that’s very well taken by GPs. It just makes a whole difference to the process – you’re more able to attract deals and do deals.”

Increasing direct investment activity by LPs was a recurring theme, with Marcus Simpson, head of global private equity at QIC, flagging the trend as one of the industry’s biggest overall changes in recent years. Panelists recognized QIC as a leader in this field. The firm has made co-investments in some 30 companies and participated as both a buyer and seller of secondary interests in funds.

Simpson forecast a more rapidly changing investment environment in the coming years that would require LPs to increasingly focus on governance and risk issues. This was said to be especially important in the context of more direct LP involvement in private equity and a more competitive overall investment landscape.

“This industry has to continue to outperform the public markets, otherwise there will be no 40th AVCJ and this room will be empty,” Simpson said, referencing the event’s 30-year milestone. “If you look at the last couple of years, the public markets have been on a tear, and if you did have outperformance from your private equity program, that has probably been eroded.”

The AVCJ Forum is being held in Hong Kong on November 14-16. For more information, go to www.avcjforum.com.     

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• Topics
• Greater China
• LPs
• GPs
• China
• Asia
• Alberta Teachers’ Retirement Fund
• QIC
• HarbourVest Partners
• Co-investment