How much is too much?

This says a lot about LPs' current preferences. US buyout strategies are being reconsidered and, for some, the sweet spot has moved down to funds with a corpus of $500 million to $1.5 billion, ideally with expertise in one or two distinct areas. Yet most North American LPs are underweight on emerging markets and still see a global brand name and a pan-regional approach as the best way to boost their Asian exposure.

The idea that KKR's Asian fund might come within touching distance of its flagship North American vehicle says everything about Asia's rising private equity profile. It also explains why global firms devote so many resources and attention to this part of the world.

With the opening of its Singapore base last week, Asia now accounts for half of the 14 private equity offices KKR has globally. For The Carlyle Group, it is nine out of 29; for TPG Capital, eight out of 17; for Bain Capital, four out of eight; for CVC Capital Partners, eight out of 21; for Warburg Pincus, four out of nine; and for The Blackstone Group, seven out of 16, although Singapore, currently classified as base for real estate operations, is expected to include private equity in due course.

In addition to KKR's $6 billion fund, which will be up to 50% larger than its predecessor, Carlyle is said to be seeking $3.5 billion for its fourth latest Asian fund, up from $2.55 billion for its third, while TPG is targeting $4-5 billion for its sixth regional vehicle, up from $4.25 billion for its fifth. Having raised $1 billion for its first Asian fund, Bain closed its second earlier this year at $2.3 billion.

The pool of capital among these four firms alone could rise by more than 40% on the previous vintage, so where will the extra go?

It could be argued that, as a result of foreign exchange rate fluctuations and economic development, the extra isn't as much as it might seem to be. Emerging markets currencies have appreciated against the US dollar while potential target companies have grown over the last five years so the equity check required for a buyout is larger.

But Asia has also evolved in competitive terms. Several of regional and country-specific private equity firms have also achieved greater scale in recent years and can at least challenge the buyout firms towards the lower end of their typical transaction scale.

In this respect, the number of offices is important. An indigenous Asian firm could always claim that its local knowledge and network of contacts stretched further than a firm trying to cover the entire region as just one piece in a global network. As such the global buyout firms have recruited aggressively to create local teams within Asia and thereby wipe out any actual or perceived disadvantages.

These efforts must bear fruit. In order to deploy $4 billion across a five-year period, a private equity firm requires: one or two large buyouts in each of the more mature markets of Australia, Japan and South Korea; significant deal volume, including at least one larger transaction, out of Southeast Asia; continued success in China, hopefully aligned with increasing deal sizes; and India to deliver on its promise.

Look back at the past five years and not all of these sub-regions have performed as one might have hoped. The advantage of a pan-Asian fund is that it can respond to this by shifting its focus between countries, but a larger overall capital pool means more of these markets must work more of the time.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Fundraising
• Buyout
• Investments
• Asia
• Fundraising
• buyout