Asia fundraising: The $10b club

It always seemed inevitable that Asia would one day see a $10 billion private equity fund. But who would have guessed, as recently 18 months ago, that the moment would come so soon?

Substantial increases in fund size among the pan-regional players is a well-established market trend. It is a function of the increased demand for private equity exposure from large institutional investors globally. Driven by minimum check size constraints and an innate comfort with brand-name GPs, they have funneled their commitments into the largest vehicles.

If there was a breakthrough moment, it came in early 2017 when KKR set an institutional hard cap of $8.5 billion for its third Asian fund, with commitments from the firm's balance sheet and management team to take the total past $9 billion. A final close of $9.3 billion was announced in June 2017.

It is worth noting that KKR launched the fund with a target of $7 billion. When the firm ended up substantially north of that figure, it appeared to trigger a revising of expectations across the board. A select group of pan-regional managers have succeeded in raising large sums at short order in recent years. The question was always how much is too much. Suddenly, $6 billion became the new $5 billion.

At the start of 2018, Affinity Equity Partners closed its fifth fund at $6 billion, up from $3.8 billion for the previous vintage. The Carlyle Group's fifth Asia buyout vehicle subsequently came in at $6.55 billion, up from $3.9 billion for Fund IV. Baring Private Equity Asia and PAG Asia Capital are in the market targeting $5.5 billion and $4.5 billion, respectively, but their hard caps are likely to be $6 billion or above.

Now Hillhouse Capital has surpassed them all with a $10.6 billion fundraise, comprehensively exceeding a reported $6.5 billion target. Hillhouse differs markedly from the other firms that fill out the ranks of Asia's largest fundrases. However, the manager's success could be seen to reflect the prevailing market dynamics – in positive and negative contexts.

First, Hillhouse does not have a meaningful track record as a buyout investor. It has exhibited an appetite for control transactions that require operating capabilities, but this is a relatively recent phenomenon. Second, the firm is best-known for its investment flexibility – backing companies ranging from start-ups to established listed players – and making that work in the technology space. Hillhouse has prospered as a backer of Tencent Holdings in the public markets and JD.com in the private markets.

With a past and present portfolio that reads like a rollcall of Chinese unicorns, the firm might easily be categorized as an investment option for a world in which technology companies stay private for longer and raise ever-larger late-stage rounds. It would sit in the prestigious company of the SoftBank Vision Fund and Sequoia Capital's global growth fund.

At the same time, Hillhouse is said to have shown that its understanding of technology can be put to good use in a conventional private equity setting. Having teamed up with CDH Investments last year on a $6.8 billion privatization of Belle International, a Chinese women's shoe retailer. It seconded one of its founding partners to head a division of more than 1,000 engineers and executives tasked with integrating Belle's business model with the digital economy. Apparently, the early signs are promising.

Hillhouse's approach could therefore be a good fit for the technology-oriented investment opportunities that have come to dominate the Asian market. But the lingering question is whether $10.6 billion can be deployed efficiently while following a largely China-centric strategy. The $17.6 billion bid for Yum China by a consortium led by Hillhouse, while unsuccessful, offers insights into the extent of the firm's ambitions. How many other big beasts are out there that Hillhouse can get across the finish line?

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• Topics
• Greater China
• Fundraising
• GPs
• Buyout
• Growth
• China
• Asia
• Hillhouse Capital Management