LPs raise concerns over GPs’ ability to bring good returns - AVCJ China Forum

Jacob Chiu, managing director of Hong Kong-based fund of funds Squadron Capital, said the company will continue to focus on China. The key issue concerning the company is whether GPs - whether they are local GPs raising US dollar funds or overseas GPs raising renmini-denominated funds - are able to deliver satisfactory returns.

"The economic growth in China is now lower than the past few years, but its 7-8% growth is still substantially better than many other markets," Chiu said. "Whether the macro environment can be converted into returns depends on the selection of GPs, but I believe China will still deliver good returns."

Speaking in the same panel as Chiu, Juan Delgado-Moreira, managing director of Hamilton Lane, added that while there hasn't been a significant change in the GP landscape across China, the diversification of GPs in the country remains the key issue.

Andress Goh, managing director of Allianz Capital Partners, is less optimistic about the growth prospects. Instead of buying into China's growth story, she said the company intends to do more investments in the US market, where LPs can easily get access to a pool of talented GPs that have good sector knowledge.

"Right now the best opportunity is in the US market and we do not greatly fancy China as the market does not provide the best returns from a private equity point of view," she said. "GPs in the US can sometimes make a return as much as 3-5x, so why take the risk on managers that cannot guarantee such good returns?"

Speakers in the forum expressed worries as to how GPs are going to exit their investments. While returns multiples go down as market performances decline, companies listed in overseas markets have also been negative about the IPOs of many Chinese companies. Foreign investors are currently less interested in Chinese companies, which they don't understand.

Min Lin, partner at NewQuest Capital Partners, said in a separate panel that although IPO markets will not stay low forever, people are now starting to consider other exit routes. Secondary transactions account for 30-40% of exits in the US, but it's still less than 10% in Asia.

"Everyone - both GPs and LPs - wans returns and people cannot stay with the company forever," she pointed out. "One way is to let other PE investors continue the company's growth story until it can really hit the market."

Jim Tsao, partner at Unitas Capital, added that only four out of its 26 exits were via an IPO. "For us, the biggest channel is to sell our companies to strategics in secondary sales, including to multinational companies."

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• Topics
• LPs
• Greater China
• China
• LPs
• Squadron Capital Advisors
• Allianz Private Equity Partners GmbH
• Unitas Capital
• Hamilton Lane
• NewQuest Capital Partners