Overseas LPs find entering Asia challenging

Caisse de Depot et Placement du Quebec (CDPQ), the second-largest Canadian pension fund, has been actively building its local team in Asia in recent year with offices in Singapore, New Delhi and Shanghai. Of its $25 billion global PE portfolio, 5% is invested in Asia.

The LP hopes to write between $200-$700 million in each direct investment or fund managed by third-party GPs, but it has been challenging for the LP to find GPs – CDPQ currently has six GP relationships in Asia – that can accommodate such a large check size in their fund. Often time the LP has to scale down the allocation that it proposed initially.

“That’s the same challenge on the direct side. I believe that large quality assets are scarce in Asia. When you have found them, they command a premium. So, you have to be willing to overpay for those assets in order to deploy capital,” said Dave Brochet, managing director and head of Asia at CDPQ. “We are having a very interesting conversation between the Asia team and teams based in Europe and North America on what the right value and multiples should be.”

On a separate note, Canada Pension Plan Investment Board (CPPIB), the country’s largest pension fund manager which has been operating in Asia for about a decade, expects to see more LPs concentrating their commitments among a smaller number of GPs. That model – which CPPIB currently follows – allows LPs to build deeper relationships with local GPs, access higher-quality assets and add more value to portfolio companies, said Suyi Kim, a managing director and head of Asia in CPPIB.

Franklin Pak Associates advises US-based small to middle-sized institutions looking to invest in Asia, with a preference in the middle-market space. As these institutions have just started building their international PE programs, their check sizes for individual funds, along with direct and co-investments, tend to be relatively smaller than players like Canadian pension funds.

“We aren’t looking to deploy $200 million at one time in one fund. We’re looking to deploy $20-$30 million in a fund, so that affords us the opportunity to gain allocations a bit more easily than some of the larger folks,” said Neil Mowery, a managing director at Franklin Park. The manager currently has 18 GP relationships in Asia, and over 60% of its Asia portfolio is allocated to China-focused GPs.

US-based insurer MetLife, which is also looking at the mid-market space with a ticket ranging from $40-$80 million, avoids overweighting on China as distributions-to-paid in (DPI) ratio is relatively low in the country compared to mature Asian markets like Japan and Australia. While there are a handful of high quality mid-market GPs in mature economies, the LP has found it difficult to access countries like Japan and South Korea. Some GPs in these countries are not sophisticated enough to raise capital from foreign LPs, and some have never left their own countries.  

“The challenge is really on how to uncover opportunities in those type of markets which are deep enough to support high quality mid-market GPs,” said Shirley Ma, a director at MetLife Investments Asia’s private equity division.

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• Topics
• Greater China
• North Asia
• LPs
• Fundraising
• China
• Japan
• South Korea
• Canada Pension Plan Investment Board (CPPIB)
• Caisse de depot et placement du Quebec (CDPQ)