Private Equity Hops Ahead in the Year of the Rabbit

For this week, I thought it would be interesting to take a quick look at what's in store for private equity investors in the year of the Rabbit. Since I don't possess a crystal ball, I visited the website of CLSA's Feng Shui Index, an annual report the brokerage describes as a "tongue-in-cheek look at what 2011 holds for equities, commodities, property, and the zodiac signs in the year ahead."

According to CLSA, the year of the Rabbit promises plenty of luck and material gain for investors. However, expect a slow start to the year with the Rabbit reluctant to emerge from its hole for fear the Tiger (last year's symbol) still lingers. However, as the Rabbit finds his feet, wealth will come from the West in April and then, while there will be ups and downs during the year, the Bunny is predicted bounce up to close the year on a high. (Read the full report here https://www.clsa.com/pdf.cfm?link=/assets/files/reports/CLSA-FSI-2011.pdf)

While an interesting read, the CLSA report isn't really all that relevant for the private equity industry. Yet in reflecting on recent conversations, it does furnish some food for thought, especially in the fundraising area. The first few months will likely be sluggish as GPs prepare themselves for the year. Remember that many of the Hong Kong-based managers, who control the most Asian PE capital, will be away for another week even though it's now only a month after the Christmas and New Year holidays. It gets even better for Mainland GPs, many of them taking two weeks for the Spring festival.

Not to worry, though; many of these fund managers will have a busy year when they come back. A number of Asia's most recognized buyout firms will be back in the market this year with new funds. And while they are still mum on the actual fund sizes, these GPs have amassed close to $10 billion in capital from their last outing.  But they will need to work on their exits, from IPOs to trades sales, which are essential in keeping those increasingly important LPs feeling warm and fuzzy about their next offering.

Something else to remember: track records are definitely a must for those looking to find the most carrots in their fundraising this year. As one very prominent North American LP told a colleague earlier: "I think you'll see the [fundraising] numbers improve relative to where they were last year. But it's also likely the market will remain bifurcated, with the haves and have-nots." He explains that while there are now more investors with the ability to invest, many are still. So for private equity firms with an impressive track record, the money will be made available. However, for those who lack this attraction, LPs will likely give them the stiff arm, making their fundraising long and protracted.

In conclusion, like the rabbit, private equity firms need to be quick and nimble with their exits otherwise the carrots popping up in their fundraising gardens will be skimpy. And finally, a word for the wise, in terms of investing: slow and steady is the way to go… even the tortoise can beat an overconfident hare sometimes.
May the year of the Rabbit bring you great deals and better exits. Kung Hei Fat Choi.

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