Customized solutions: LPs look beyond the blind pool

The consortium took a 1.5% interest in GLP and a 30.3% stake in the subsidiary that holds its substantial China-based interests. It is a stark illustration of the appetite of China's nascent institutional investors for exposure to certain kinds of private assets. However, the level of activity in Asia's broad infrastructure space stretches much further.

GLP's portfolio was worth $19 billion and encompassed 29 million square meters of logistics facilities across China, Japan and Brazil as of year-end 2014 (and since then it has moved into the US market as well). The likes of GLP and Goodman - which works in China with Canada Pension Plan Investment Board (CPPIB) - have set up joint ventures with select clients to complement their fund management platforms and balance sheet capital.

The demand for infrastructure in Asia, particularly logistics facilities in China to meet the demands of the country's rapidly-expanding e-commerce sector, is clearly a major draw. Private equity firms also recognize this need; hence the string of substantial investments in warehouse providers and express logistics companies.

But infrastructure and logistics are also the most visible example of how institutional investors - many of which also fulfill the traditional LP role - are looking beyond blind pools for private markets exposure. The nature of the asset is an obvious contributing factor: it is capital intensive, long duration, yield-generating, relatively low risk and usually well-suited to clubs of investors working in partnership with skilled operating partners (whose compensation follows a different pattern to PE norms).

To some in the industry, though, it is also suggests that the amount of capital looking to be deployed in Asia is far larger than the amount that can be accessed through funds. While there is increasing demand among North American and European groups for Asian exposure - many are still underweight on the region, particularly given its growing economic significance - they are joined by a host of new counterparts.

The make-up of the GLP consortium offers a snapshot of the insurance companies and other financial institutions that are expected to emerge as major players on the world stage. South Korean and Australian institutions are also ramping up their international exposure, while pockets of sovereign wealth and pension fund assets are emerging in Southeast Asia in the shadow of Singapore's established behemoths.

In the pure private equity space, this means more pressure on top-performing managers to boost their fund sizes in response to ballooning demand. Co-investment will undoubtedly play an increasingly prominent role, but it is unlikely to satisfy everyone. The answer is structures that exist beyond the traditional limited partnership model - in terms of size, tenure, ownership, and participation.

The caveats are that the assets must be suited to the approach and the investors must be sufficiently sophisticated to manage the portfolio, or find someone to do it for them.

If GLP's joint ventures and fund management platforms are one option, then Equis Funds Group's latest capital-raising effort is another. The Asia energy and infrastructure specialist collected $1 billion for its second fund within six months plus a further $700 million that will be used to support Fund I portfolio companies and supplement two clean energy platforms that are experiencing especially rapid growth.

It is not a complete departure from the blind pool, more a modification. But it points to a future that is increasingly tailored to meet the needs of investees and investors.

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• Topics
• Infrastructure
• Infrastructure
• Fundraising
• LPs
• Asia
• LPs
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• Infrastructure