PAG files for Hong Kong IPO

The planned Hong Kong offering represents the second announced monetisation event in a fortnight – and the third this year – by a pan-regional private equity firm, reflecting an appetite for exposure to the region and an attractive valuation environment. It follows MBK Partners selling a GP stake to Dyal Capital Partners and Baring Private Equity Asia (BPEA) agreeing to a USD 7.5bn tie-up with EQT.

Private equity is the most recent addition to a diversified PAG portfolio comprising 13 fund strategies and 30 active funds, according to a prospectus, but it is the second-largest and the best-performing. The asset class accounted for USD 16.9bn in AUM as of year-end 2021 and has delivered a gross return of 26% since inception. This compares to USD 20.9bn and 20% for credit and USD 9bn and 25% for real assets.

The firm was founded – as Pacific Alliance Group – by Chris Gradel in 2002. Private equity and real assets were introduced in 2010 with the recruitment of Weijian Shan, formerly of Newbridge Capital and TPG Capital, and the acquisition of Secured Capital Japan, respectively.

Gradel, Shan, and Jon-Paul Toppino, co-founder of Secured Capital Japan, are identified as the three founders, collectively holding more than 50% of the PAG management entity. The Blackstone Group paid USD 400m for a 19.99% interest 2018 – valuing PAG at approximately USD 2bn – and has since been diluted 17.6% by employee incentive schemes. Its voting interest is capped at 4.9%.

Within private equity, PAG has raised three buyout funds. Buyout Fund I closed on USD 2.5bn in 2012 and had generated a gross multiple of 2.87x and a gross IRR of 19.5% as of December 2021. The comparable figures for Fund II (USD 3.66bn, 2015) and Fund III (USD 6.05bn, 2018) were 2.64x and 25.3% and 1.24x and 19%. Fund IV is said to be in the market with a target of up to USD 9bn.

There have also been two growth funds, which closed on USD 350m in 2018 and USD 525m in 2021. Growth Fund I had generated a gross IRR of 26% as of December 2021.

PAG’s buyout funds have deployed more than USD 10bn across 45 investments to date, realising USD 6bn. Last year, USD 2.37bn was put to work, comfortably eclipsing the previous record high of USD 1.51bn set in 2017. This included a USD 2.8bn contribution to a USD 6bn round raised by Chinese shopping mall operator Wanda Commercial Management Group, PAG’s largest-ever investment.

China has accounted for the bulk of the firm’s investment activity. However, in 2021, it also deployed USD 1.19bn in Asia ex-China, more than the previous four years combined.

"Ten years ago, it would be a stretch to find an investment opportunity where you could deploy USD 500m. Now you can deploy USD 1bn. As the market has grown, fund sizes have grown just to stay in the game. Our underwriting hasn’t changed in any way at all," Shan told AVCJ in a recent interview.

PAG operates out of 12 offices – 10 in Asia Pacific, plus one in each in London and New York – and employs 293 investment professionals across all strategies. The private equity team comprises 104 professionals working out of nine offices.

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• Topics
• IPO
• Greater China
• GPs
• Asia
• PAG
• Hong Kong (China)