Inside fundraising: Gleanings from the first half of 2014

Yes, the market remains challenging and capital appears to be gravitating towards a smaller number of managers. The trend is in line with global norms and seems to confirm sentiments LPs have been expressing for at least 12 months: risk-adjusted returns out of Asia haven't met expectations, and while they remain committed to the region, they are more scrutinizing of GPs' ability to return capital.

Parse the first half numbers further and the following themes emerge...

Dwindling buyouts: Of total funds raised in 2013, buyout vehicles accounted for 31%. This rose to 34% in the first half of 2014 but the activity is volatile, with the latest round of large pan-regional vehicles moving the needle. Affinity Equity Partners, CVC Capital Partners and TPG Capital all announced final closes in the first half of 2014. While the likes of Baring Private Equity Asia are back in the market - with a hard cap of $3.5 billion on its latest fund - most of the larger players have finished, leaving an interesting collection of middle market firms.

Growth capital struggles: Capital entering growth vehicles has been falling for some time, with $6.4 billion committed to such funds in Asia in the first half of 2014 compared to $21.1 billion in 2013 as a whole. This is largely a China phenomenon - the 2011 peak in Asia growth capital fundraising coincided with the peak for China and its subsequent decline can be linked to the slowdown in IPOs on the country's bourses. To be considered viable by LPs, a China strategy must now offer more than ambitious projections for multiples arbitrage. The ability to add value operationally is increasingly important.

China buoyed by VCs: With growth capital players suffering, China fundraising has been bolstered by venture capital. More than $6.7 billion was committed to VC managers in the first half of 2014 - already more than in 2013 as a whole - and most of it went to China. This is in part cyclical: a core group of established players tend to return to market around the same time. However, the recent jump in China tech IPOs plus a growing number of trade sales to domestic internet giants has also piqued interest.

Appetite for distress: Distress funds also raised more in the first half of 2014 than for 2013 in full. Two sizeable funds are responsible for the spike in activity: India-focused Aion Capital raised $825 million while pan-Asian player SSG Capital Partners raised $915 million for its third fund. It is possible that LPs are buying into the potential for alternative forms of financing as certain economies in Asia show signs of weakness. Equally, they may appreciate the fact that distress funds focus on hybrid debt-equity transactions that can start delivering returns earlier.

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• Topics
• Fundraising
• Asia
• Fundraising
• China
• buyout
• Venture
• Distress