US CIOs must see Asia if they are to get comfortable with it - AVCJ Forum

"You have to get senior leadership comfortable with the idea of investing in emerging markets. Bringing them over to see it and meet the right people went a long way to making it less of a mystery in our case," said Peter Keehn, global head of private equity at Allstate Investments.

Allstate had total assets of $81.1 billion as of March 2017, including $4.14 billion in private equity fund commitments and an additional $161 million held outside of limited partnerships. The firm made its first emerging markets PE investment in 2005 as part of ongoing efforts to diversify what was then a portfolio skewed towards North America buyout strategies.

Allstate backed a pan-emerging markets manager, reasoning that it made sense to place allocation decisions in the hands of a group that had people on the ground at a time when in-house knowledge of these geographies was lacking.

Guardian Life Insurance, meanwhile, relied on fund-of-funds relationships to get comfortable, although Maurice Gordon, the firm's head of private equity, also stressed the importance of "getting the CIO out to China and India." Guardian Life had $50.5 billion in total invested assets as of December 2017, of which $1.48 billion was in private equity and real estate.

Fund-of-funds remain an attractive means of accessing Asia for US institutional investors that don't have substantial internal resources devoted to private equity. New York State Common Retirement Fund (NYSCRF) – which had total assets of $192.4 billion and a PE allocation of $15.3 billion as of March 2017 – is a longstanding partner in Asia Alternatives, at various points committing to the manager's co-mingled fund-of-funds and co-investment funds.

It has also seeded a pan-regional special situations GP alongside Asia Alternatives and a sovereign wealth fund. "Before we invested I presented three times to the investment committee, the only time that has ever happened," said Reginald Tucker, a senior investment officer with NYSCRF's opportunistic strategies and absolute returns team. "Even with it being sized right – at $100 million it was the smallest investment we can make – it was a heavy lift."

In addition to fund-of-funds – in this case, Axiom Asia – State of Michigan Retirement Systems prefers backing global PE firms that have a presence in Asia. The LP, which had $70.6 billion in assets as of March and a 15.5% PE allocation, has invested in pan-regional funds raised by global and Asia-only firms. Finding that these managers were not providing optimal China exposure, it committed to Warburg Pincus' debut China fund, having previously invested in the manager on a global basis.

"Global GPs that do Asian funds have significant resources in Asia, such as internal consulting groups and capital markets teams," said Kevin Fedewa, a senior portfolio manager at Michigan State. "There are also sector teams in the US and Europe that work on what the Asia teams are doing, so it's a joint effort in terms of looking at deals and managing post-investment activity."

Allstate has about a dozen GP relationships in Asia, including pan-regional and country-specific managers. Building up country-specific exposure was not easy. "To get these guys it took forever, we had to meet with so many people," said Keehn. He added that the market mapping is more challenging than in the US, but granular analysis is the only way to safely execute a single country manager strategy. "They all sound good when you meet them in your conference room," he noted.

While Asia is Allstate's best-performing geography for private equity on a three, five, and 10-year basis, this has largely been driven by co-investment. Keehn admitted that the region has yet to consistently deliver a 200 basis-point premium to the benchmark return at the fund level, but he likes the diversification benefit. Allstate is now studying local GPs in Japan – not previously a priority – with a view to broadening its Asia portfolio.

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• Topics
• North America
• LPs
• Fundraising
• Asia
• Allstate
• New York State Common Retirement Fund
• State of Michigan Retirement Systems
• Guardian Life Insurance