NewQuest seeks $850m for fourth Asia secondaries fund

The manager has yet to set a hard cap but sources familiar with the situation indicated it would be no more than $1 billion. The firm closed Fund III at $540 million in mid-2016 after raising the hard cap from $520 million. The original target for the vehicle was $500 million.

The step-up in fund size could be seen to reflect a general bullishness regarding secondaries in Asia. Transaction volume reached $7.8 billion last year, according to Lazard, with GP-led transactions contributing $4.8 billion, up from $2.7 billion in 2017. There are expectations for more of the same in 2019. Investors claim to see more opportunities in areas like venture capital, where GPs need liquidity solutions to address an imbalance between capital deployed and capital returned. 

The middle-market space has been characterized by greater ambition and creativity in recent years. It has featured transactions that involved rolling out single assets into new vehicles to facilitate longer holding periods, strip sales from portfolios, preferred equity structures, and renminbi-to-US dollar restructurings, as well as classic recapitalizations and tail-end restructurings.

NewQuest’s activities last year included backing a renminbi-to-US dollar deal for Loyal Valley Capital and bankrolling the formation of a fund that acquired an existing – but disparately-owned – portfolio managed by Singapore-based Basil Partners and providing additional capital for follow-on investments.

The latter transaction is part of a fund solutions strategy devised by NewQuest over the past couple of years that has seen a mandate that was previously solely about direct secondaries expand into more traditional areas. These are typically complex situations, where NewQuest acquires a significant LP interest in a fund and collaborates with the incumbent GP on top of a restructuring or spin-out. In the case of Basil, the objective was to consolidate the portfolio and provide additional runway.

Meanwhile, direct transactions remain central to the firm’s approach. This involves acquiring single assets and multi-asset portfolios from investors that may be changing strategy, leaving a geographical market or returning capital to LPs to support a new fundraising process.

NewQuest was created in 2011 through a spin-out of Bank of America Merrill Lynch’s (BAML) Asia PE team. A debut fund of $400 million was primarily used to acquire 21 private equity positions from BAML. A second fund of $316 million was raised in 2014. TPG’s purchase of a one-third interest in the firm – its first investment in the secondaries space globally – was made with a view to helping NewQuest address the challenges that come with adding scope and scale.

"While we already have an established secondary directs business, and have been building our fund solutions business over the past 12-18 months, there are other spaces within the secondaries market that remain untapped," Darren Massara, a managing partner at NewQuest, told AVCJ at the time. "If you look at how the US and Europe have evolved, areas of sub-specialization within the secondaries vertical have emerged. If those areas become interesting in Asia, we want to continue to capitalize on our first-mover advantage and believe TPG can be helpful in this respect.”

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• Topics
• Fundraising
• Secondaries
• GPs
• Asia
• Secondaries
• NewQuest Capital Partners