NewQuest closes Fund II, prepares for hydropower take-private

The fund is expected to be 50% deployed by the end of July. Other transactions are said to include the acquisition of a portfolio of positions from a single seller.

NewQuest was created three years ago through the spin-out of Bank of America Merrill Lynch's Asia private equity team. They took 21 private equity positions with them and raised a $400 million fund backed by HarbourVest Partners, Paul Capital, LGT Capital Partners and Axiom Asia.

The firm reached a first close of $215 million on Fund II last December with commitments from HarbourVest, LGT and two new LPs, both of them primary institutional investors. NewQuest sought to broaden the investor base as it embarked on a more formal process in February to raise the rest of the fund. According to a source close to the firm, there are fewer than 10 additional LPs, including pension funds, family offices and sovereign wealth funds.

"We are a pan-Asian fund but we will largely focus this fund on Greater China and India because that is where we see the greatest need for liquidity among PE asset owners," said Darren Massara, NewQuest's managing partner.

NewQuest targets single assets and multi-asset portfolios held by family offices, corporations, banks and hedge funds, as well as private equity firms. GP sellers may be seeking to change strategy, leave a particular market or return capital to LPs in order to support a new fundraising process. They may also be under end-of-fund-life pressure and willing to offload un-exited assets in order to liquidate a fund.

"Secondary transactions are going to increase as a percentage of total transaction volume in Asia," Massara added. "Will it get to where the US and Europe are at 50%? Probably not. Is it conceivable it will get to 20% or so in the next five years? Yes. Right now it is 10% or below."

As a take-private situation, China Hydroelectric does not represent a normal NewQuest deal, but it is still a secondary direct transaction. The private equity firm started out with a 25% stake in the hydropower operator but gradually built up its holding to 54% by acquiring interests from other investors.

In September 2012, NewQuest led an investor group that successfully replaced five of China Hydroelectric's seven directors, citing strategic and operational issues at the company and the apparent lack of credibility and accountability on the board. It offered to buy the company in September 2013 and a bid of $3.51 per American Depository Share won board approval in January.

China Hydroelectric shareholders are scheduled to vote on the bid today. According to a regulatory filing, the transaction will be financed through rollover equity from NewQuest and Tsing Capital plus additional capital from NewQuest. Post-merger, NewQuest's first and second funds would own 61% and 34.2%, respectively, of the company. Tsing will hold the remainder.

NewQuest is understood to have finished investing from Fund I. All of the capital drawn down has been returned to investors, following multiple full and partial exits from the 21 positions carried over from Bank of America Merrill Lynch. Recent partial exits include iKang Healthcare and Primax Electronics.

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• Topics
• Fundraising
• Buyouts
• Secondaries
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• China
• NewQuest Capital Partners
• Fundraising
• buyout
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• India