LPs want more transparency in Asia GP relationships

Catherine Shih, a partner at Quilvest, noted that GPs could differentiate themselves in a challenging environment by demonstrating institutional processes, transparency, portfolio management, and valuation capabilities. LPs get comfortable when managers show competency in these areas and don't shy away from communicating the difficulties they face.

"We see that coming through in terms of people's closeness to the portfolio companies and how well they're able to articulate what's going on and the way they see the funds performing," Shih said.

"It's certainly given me a renewed appreciation for those GPs who are willing to have those tough conversations and bring us along on the journey and hopefully create some interestingly structured ways of working together."

Asia represents 20% to 25% of the Quilvest portfolio, and all of that is private equity. Shih, who is based in Hong Kong, said that although her firm has been relatively quiet in the past two years, activity is expected to pick up in the near term.

Other LPs added that there needn't be a crisis to prompt a high level of communication with managers. However, in a market of heightened anxiety, there will be more questions and a greater need for frankness in the GP-LP relationship.

"In this kind of period, I appreciate it when GPs show some vulnerability in front of the LP because we're in this together. We're fiduciaries. It's not our money. We're managing it together," said Judy Zhang, a managing director at Cambridge Associates.

Investor sentiment is generally cautious but not devoid of risk-taking. New GP relationships are being considered, with spinouts and familiar faces preferred. Moreover, unproven newcomers with the courage to attack the current market are not being ignored.

"People that have the guts to come out in this environment not only have nerves of steel but also probably do have what it takes for differentiation to come out. So, we are taking a hard look at [new managers]," Zhang added.

Cambridge's Asia coverage is dominated by China, where most of its clients are family offices with up to 50% exposure to the region. For global clients, Asia makes up 7.9% of the average portfolio, and about half of this is typically in private markets.

Regarding geography, LPs expressed wariness toward Southeast Asia, recognising the opportunity but also the difficulties in assessing the region as a homogenous opportunity set. Feedback was warmer for India, Japan's middle market, and Australian venture capital.

There was also a sense of ongoing confidence in China, some wait-and-see posturing notwithstanding.

Raju Ruparelia, a senior managing director at Ontario Teachers' Pension Plan (OTPP), noted that as an investor with a 20 to 30-year view on the country, he was encouraged by the recent reopening of the border but his firm is unlikely to rush back in.

Ambivalence on the subject was also contextualised in observations that attitudes in the market have arguably overcorrected. In recent years, China risk has been underappreciated, but now there may be an overemphasis.

"I think it's more about the perception of risk that's changing," said Doug Coulter, head of Asia private equity at LGT Capital Partners, referring to China.

"All the things that we've been talking about for the past couple of years, all the things that our LPs are worried about, they were there 7-8 years ago. It's just that we're now in a risk-off environment. That's it."

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• Topics
• Greater China
• LPs
• Fundraising
• Hong Kong (China)
• China
• Cambridge Associates
• OTPP
• LGT Capital Partners
• HKVCA