Fund focus: Asia Alternatives in speedy fundraise

Asia Alternatives' fifth fundraise proved to be one of its quickest yet. The process started in May, a first close came at the end of June, and three months after that, the fund-of-funds had $1.8 billion in the bag. It is symptomatic of the growing demand for private equity globally, and particularly in Asia.

"From time to time there have been concerns about too much money pouring into this region, making competition fiercer and pushing up valuations. From an on-the-ground perspective, while situations differ on a deal-by-deal basis, our managers have maintained a disciplined approach," says Rebecca Xu, co-founder and managing director at Asia Alternatives.

She is keen to distinguish the general increase in fund size among the global buyout firms from the dynamic prevalent among the country-focused players that Asia Alternatives primarily focuses on. There, the bifurcation in the fundraising market is all too apparent, with established managers in high demand while less proven GPs find it harder to attract capital.

LPs use fund-of-funds in different ways – as a one-stop shop or to complement direct exposure – but the Asia Alternatives value proposition is unchanged, with emphasis on helping investors build knowledge and relationships. "I view our business as adding the most value in terms of bringing in local opportunities that are harder to access from a distance," Xu says.

For example, Morningside Venture Capital and Long Hill Capital Management, two China-focused VC investors, both disclosed that the fund-of-funds backed their most recent funds. Morningside's fourth vehicle was oversubscribed, but Asia Alternatives has been an investor since Fund I so presumably gets some preferential access. Long Hill, a spin-out from New Enterprise Associates, is a bet on a GP that could become the next Morningside.

The main component of Asia Alternatives' latest fundraise is a co-mingled fund-of-funds, with a corpus of $1.515 billion. The remaining capital is spread across a handful of separately managed accounts (SMAs). In the previous fundraise, completed in 2015, there was $1 billion in the main pool and $800 million in SMAs. Asia Alternatives is agnostic as to whether the capital comes from SMAs or fund-of-funds. There is an up to 30% allocation for co-investment and secondaries.

The deployment strategy is much like previous funds, with Greater China expected to account for the largest share. What has changed for Asia Alternatives over the years is the identity of the investors. Although 85% of capital for the new fund came from preexisting relationships and North American groups feature prominently, the LP base is gradually becoming more global.

Notably, Asia Alternatives worked with a broader selection of placement agents than before. In addition to longstanding collaborator Eaton Partners, the firm used Ark Totan Alternative and Roam Capital, which specialize in Japan and Latin America, respectively.

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• Topics
• Greater China
• Fundraising
• LPs
• Fund-of-funds
• Asia
• Asia Alternatives Management
• China