Baring Asia tilts towards growth
Baring Private Equity Asia expects 10% of its eighth pan-regional fund to be deployed in growth-stage investments, underlining how Asia’s traditional large-cap buyout funds are increasing their focus on minority deals in high-growth sectors like technology.
The private equity firm launched the fund earlier this year, seeking $8.5 billion, as AVCJ previously reported. According to materials disclosed by Employees’ Retirement System of Rhode Island (ERSRI), the larger growth-stage allocation will target a limited number of situations where Baring has high conviction.
A presentation notes that 10% of Funds VI and VII went into opportunistic investments, a definition that captures high-growth companies in core sectors and special situations driven by public market dislocations. Some minority deals are classified as corporate partnering, where Baring works in tandem with blue-chip companies. The allocation for this category is 6%.
A similar presentation from 2018 stated that Baring had deployed 5% of Fund VI in minority investments and 5% in corporate partnering deals.
Fund VII closed at $6.5 billion in late 2019. Opportunistic investments include Horizon Robotics, a designer of artificial intelligence chips, Codemao, an online platform that teaches coding to children, and drug developer HutchMed, which went public in July. All are China-based. Baring has also backed Korea’s Shinhan Financial Group and India’s RBL Bank, which represent special situations plays.
Two other technology-related minority investments mentioned in the presentation fall under corporate partnering: a joint commitment with Alibaba Group to The CrownX, an online-to-offline (O2O) consumer-retail business controlled by Vietnam’s Masan Group; and a pre-IPO round for JD Health, an O2O healthcare platform spun out from China’s JD.com.
Most of Baring’s peer group is targeting similar assets, which partly explains the surge in growth-stage technology investment in Asia in recent years. It has become even more accentuated following COVID-19 and the widespread adoption of technology-enabled consumption tools.
KKR has earmarked a portion of its most recent pan-regional fund for smaller-size growth deals. The firm has also made larger bets on tech start-ups. Meanwhile, The Carlyle Group has separate Asia growth and buyout vehicles, but larger minority tech sector transactions go into the latter. Other large-cap GPs are also going directly into growth rounds from their flagship funds.
Although this activity remains on the margins – buyouts account for more than 80% of Baring’s activity – the returns appear difficult to resist. Baring joined a $1 billion funding round for JD Health in 2019 at a valuation of $7 billion. The company went public last year and is now worth over $30 billion.
Fund VII had generated a gross multiple of 1.9x and a net IRR of 52% as of June. While JD Health represents a liquidity event, partial exits and dividend recaps have contributed to distributions of $2.35 billion. The gross multiple and net IRR for Fund VI were 2.3x and 20%, with Fund V (2011) on 1.8x and 8%, Fund IV (2007) on 2.2x and 9%.
Fund VIII will continue the existing strategy driven by mid to large-cap buyouts involving companies with enterprise valuations of $500 million to $2 billion and check sizes of $150-500 million. The focus is pan-regional – plus global or cross-border deals with an Asian angle – across healthcare, education, consumer, financial services, business and technology services, and industrials.
Baring has more than 60 investment professionals working out of nine offices, as well as a 61-strong professional support team that provides expertise in areas such as debt capital markets, finance, digital and data applications, and portfolio monitoring.
ERSRI committed $50 to Fund VII and it was advised to put the same amount into Fund VIII. As of July, the pension plan had $10.3 billion in assets, of which $1.3 billion was in private equity. It has a 15% allocation to private growth, specifically 12.5% for private equity and 2.5% for non-core real estate.
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