LPs remain loyal to Asia Alternatives

It was through Asia Alternatives that NYSCRF got its initial exposure to Hony. This familiarity likely made it easier for the pension fund to write a larger check and go direct.

There are other examples of LPs using Asia Alternatives as a stepping stone to deeper participation in private equity, but this doesn't necessarily mean they abandon the intermediated approach. NYSCRF is an investor in Asia Alternatives fourth fund-of-funds, which recently closed at $1 billion, and has once again entered into a separate account.

"When we started Asia Alternatives, people warned us that LPs would just graduate and move beyond us," says Melissa Ma, co-founder and managing director of the firm. "Certainly, some LPs have done that, and some have even opened offices in Asia, but I have been surprised at how few. Our re-up rate of 80% indicates to me that a lot of groups are taking longer to graduate - if ever."

If there is a graduation trend it is from fund-of-funds to separate accounts. When Asia Alternatives closed its third fund in 2012, there was $908 million in the comingled vehicle and a further $600 million in separate accounts. This time the separate account portion is $800 million.

While restricted to larger LPs - Teachers' Retirement System of the State of Illinois' mandate is worth $200 million - separate accounts are becoming more prevalent globally. Two thirds of respondents in a Preqin survey last year expected their activity from separate accounts to be equally significant or more significant than activity from co-mingled vehicles over the next 12 months.

There are approximately 150 LPs in Asia Alternatives' fourth fund, plus a handful of separate accounts, over which Asia Alternatives has discretion. When making investments, the firm is agnostic as to whether the capital comes from separate accounts or fund-of-funds. Similarly, there is a single fee structure, regardless of which vehicle an investor is in, although LPs making large commitments get steeper fee discounts.

Asked if LPs are becoming more aggressive on fees, Ma says that most new investors want to know how Asia Alternatives is going to deliver performance. The entire fund-of-funds industry has to justify why LPs should pay an extra layer of fees and it all comes down to performance.

"They can push on fees, but there is no amount of fee break that is going to be able to get you the type of returns you need to justify a fund-of-funds unless there is strong performance," Ma adds.

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• Topics
• Fundraising
• Fund-of-funds
• Fund-of-funds
• Asia
• Fundraising
• Asia Alternatives Management
• Separate accounts