LPs require local expertise for Asia co-investment – AVCJ Forum

"In Asia, these countries are not in any way similar. They are more different than even Greece is to the UK. Really, Asia is a collection of regions," said Thomas Kubr, chairman of Capital Dynamics. "Fundamentally, I believe co-investing [from outside] Asia makes no sense for almost every LP out there."

According to Jim Hildebrandt, managing director of Bain Capital Asia, two thirds of Bain's LP base wants more co-investment opportunities in the region. "I have been very impressed by LPs that have built up a large staff base in Asia, and made that commitment in an HR sense," he added.

The Canadians are the stand-out examples of this among public pension funds. Canada Pension Plan Investment Board (CPPIB) already has an established presence in the region while Ontario Teachers' Pension Plan recently received securities and asset management licenses to operate in Hong Kong and is moving ahead with plans to staff up its new office in the city.

Leading fund-of-funds are also well staffed in Asia with teams dedicated to co-investment programs.

The draw for LPs is clear: fewer fees, more control over capital deployment and a direct hand in geographical allocation. They are also afforded a direct insight into the workings of a GP, as due diligence requirements offer a window into the mechanisms of a GP's deal teams. "It has really opened our eyes," said Patrick Knechtli, partner at SL Capital. "And in some cases it has really impacted our decision."

As to what LPs want to see when they inspect these mechanisms, proprietary deal-sourcing ranks highly - particularly in a region where valuations have been on the high side in recent years - alongside an ability to take businesses to the next level.

This doesn't necessarily involve sophisticated retooling; in many cases, substantial value is added through introducing better internal management and governance systems. "It is basic blocking and tackling and frankly, you get paid for it. That is why I like these markets," explained H. Chin Chou, CEO of Morgan Stanley Private Equity Asia.

The priority is often forging effective partnerships with the people who have guided these businesses since inception. "I think in Asia, the most important thing is the relationship with the entrepreneur. I just want returns; at the end of the day, value-add is a means to an end, it is not the end in itself," said Pak-Seng Lai, managing director and head of Asia at Auda.

A version of this article was first published in AVCJ's Europe-focused sister publication unquote".

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• Topics
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• Bain Capital Asia
• Morgan Stanley Private Equity Asia