LPs drive evolution in Asia back office practices – AVCJ Forum

LP expectations for information are rising across the spectrum of fund operations, from detailed updates on individual portfolio companies to basic information about managers’ business plans. The latter demand is fueled by local investors such as Japanese regional banks that seek reassurance about an asset class to which they have just gained exposure.

“These investors are newer to the private equity market; they are not familiar with the private equity j-curve, for example, even among the higher-level board members,” said Katsuya Baba, a partner at Advantage Partners. “So we need to take a very educational approach, in a sense, to communicating with these investors, which is not required when dealing with sophisticated, experienced international investors.”

A local LP that is new to private equity may also take advantage of its proximity to a manager to make constant demands for information and expect updates much faster than an international investor. This only compounds the burden on managers, who are expected to deliver updates to their LPs while still maintaining their normal value-add operations.

To satisfy their LPs, many local GPs have embraced outsourced fund administration services that can handle many of the routine aspects of their business while leaving the firm free to pursue matters that require their direct attention. A reputable service provider can lend credibility to the GP among its investors while providing the firm with an independent perspective on the market that can be useful. 

For example, KKR’s operations in India, which include a non-banking finance company (NBFC) and asset reconstruction platform in addition to its investment team, have benefited from hiring local fund administrators that can monitor developments in the market and recommend an appropriate response.

“It’s incumbent on us for cost efficiencies and for accuracy to hire someone slightly more local there,” said Kapil Kirpalani, chief compliance officer at KKR in Asia. “The Big Four are always our partners and we work across their offices to make sure there’s a level of consistency, but there is always a need for local providers to handle local LPs and other issues on the ground.”

However, outsourced management is not a catch-all solution. Talent may not be available on the ground in all geographies – Advantage has found it difficult to hire a Japanese administrator with the same caliber of talent as those that manage its overseas business, for example. GPs must also maintain active oversight of their partners or risk damaging important LP relationships.

“Fund administration helps us a lot in terms of handling routine procedures, but on the flip side we also have issues of administrators not understanding our relationship with LPs and being too restrictive in terms of what they’re providing,” said Jessie Yan, a director and general counsel at Lunar, a Chinese mid-market buyout player. “That’s a balance you need to manage internally as well – you can’t be 100% outsourced and off the hook for that.”

The AVCJ Forum is being held in Hong Kong on November 13-15. For more information, go to www.avcjforum.com.

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• Topics
• North Asia
• Greater China
• GPs
• Performance
• LPs
• China
• Japan
• Advantage Partners
• Lunar Capital Management
• KKR