Asian GPs should share the wealth internally - AVCJ Forum

Roy Kuan, managing partner at CVC Capital Partners, said that dissatisfaction over payment - because the bulk of carried interest goes to one or two founders rather than being shared out more equally - was the number one reason for people switching firms, based on job interviews he has conducted.

"You see many young GPs or PE firms not sharing the economics or not being transparent about the economics. It is so easy to change the carry rules or the share ownership rules or the bonus rules," Kuan said. Pool-based carried interest systems where people are paid according to job title as opposed to the work they put into successful deals can also be a source of frustration.

This has contributed to relatively high turnover within the industry, even though there are more talented investment professionals in Asia than ever before. H. Chin Chou, CEO of Morgan Stanley Private Equity Asia, views the situation in the context of a maturing market. He noted that on joining Morgan Stanley in the US nearly 30 years ago, there were plenty of role models who had spent 20 years or more at the firm. This was not the case when he arrived in Asia.

"When I first came to Asia the senior people were jumping around a lot. It took time and cycles for senior people to recognize that there is something about staying in your seat for a while and let the compounding do the work," Chou said. He expects to see greater stickiness in time, in part because there will be more established figures in the industry to serve as role models.

At the same time, recruitment has in some respects become easier due to reduced competition. K.Y. Tang, chairman and managing partner at Affinity Equity Partners, observed that 10 years it was difficult to recruit good people because investment banks and hedge funds were also hiring and they offered more immediate financial rewards than private equity, where there could be a 10-year wait for carried interest.

"Today the situation is quite good," Tang said. "Investment banking is not as glamorous as it was before and hedge funds are having a difficult time so PE has become a more attractive industry."

David Wong, managing director at PAG, added that he sees an increasing number of high quality candidates for associate level positions coming out of banks and consulting firms in China. "Asia has become a much more important part of these institutions' global business so more emphasis is put on training young professionals," he said. "But it still takes 5-7 years for these guys to become deal leaders."

The AVCJ Forum is being held in Hong Kong from November 3-5. For more information, please go to www.avcjforum.com.

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