Asian GPs under pressure to return capital to investors – AVCJ Forum

"The times when you could fundraise based on paper returns are coming to an end," said Bonnie Lo, a partner at NewQuest Capital Partners, which focuses on direct secondary investments. "We talk to LPs and they say, ‘We invested in Fund I and Fund II and we went with Fund II because there was a 3x return on Fund I, but it's been 6-7 years and we have not seen any distributions.'"

Jean-Christophe Marti, a partner at Navis Capital Partners, added that his firm is seeing this dynamic play out on two levels. First, Navis is being offered more secondary opportunities as existing private equity investors look to exit assets in order to return capital to LPs. The firm recently acquired a majority stake in TES-Envirocorp, a Singapore-based electronic waste specialist, with a substantial portion of its holding coming from a local fund mangaer.

Second, like many GPs in the region, Navis is seeking exits itself. "We are under pressure from LPs to realize and we are fortunate that most of our exits have been trade sales, with two secondaries," Marti said. "We have a greater focus on creating liquidity as a firm."

LPs are not necessarily scaling back on their commitments to Asia: the region might account for less than 2% of a typical US public pension fund's 10% private equity allocation. Robert Collan, vice president for private equity at Unigestion, a Europe-based investor with $13.7 billion in assets, noted that at this point in time diversification is much more important than outsize returns for his investors, subject to a net multiple threshold of 2-2.5x.

However, investors are becoming more sanguine in their expectations of performance from managers in the region.

"We would have expected by this point in Asia to see a much larger dispersion within the top quartile," said Doug Coulter, a partner at LGT Capital Partners. "That will still happen but right now a lot of firms are clustered around the median." He added that average returns aren't compensating LPs for having their money tied up for 10 years. LGT also views a 2-2.5x multiple as satisfactory for Asia.

Han Seng Low, executive director at UOB, stressed that LPs must appreciate the cyclicality and volatility that comes with investing in emerging markets. Although the challenges have proved longer than anticipated, LPs are increasing their allocations to the region and he sees it as a wise move.

"Now is a good time to start looking at Asia if you take the view that it's on a structural uptrend," Low added. "You have the growth of the middle class, industries reaching a point where growth no longer requires more capital but there is a generational shift, and inefficiency in capital markets."

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• Topics
• Fundraising
• Exits
• LPs
• GPs
• LPs
• GPs
• Asia
• Navis Management
• NewQuest Capital Partners
• LGT Capital Partners
• Exit