Regional funds and global LPs

The remaining three weeks in the month are comparatively less travel-heavy, but the schedule is still packed with the standard GP fare: reviewing potential and existing portfolio companies, either in person or on paper; touching base with consultants, auditors, lawyers and; and an assortment of internal meetings, covering everything from investments to compensation.

Question: "During all of this, how often must you talk to your LPs?" Answer: "All the time." It should be added that the question wasn't posed during a fundraising period.

A global buyout firm that operates a variety of vehicles across different geographies and asset classes generates sufficient fees to retain a large pool of staff. Regional and country-focused managers, who might have no more than a couple of funds underway at any one time, are run as tighter ships. Their fund sizes tend to be smaller, which means smaller ticket sizes, and their investment professionals are fewer, which means only a certain number of deals can be pursued at once. However, they have strong local networks and decisions are made within the region rather than deferred to New York or Washington.

At a time when several pan-Asian funds are either in the market or preparing to launch, it should come as no surprise that LPs' perception of these GPs differs markedly. The more interesting point that arises from the resources issue in particular is that pan-Asian fund managers' perception of LPs also differs.

There are two forces at work here. Firstly, institutional investors are less willing to write large checks than in 2007. Commitments to private equity have been cut back and one placement agent estimates that only 15 players globally have the capacity to commit $200 million or more to a single GP. Needless to say, Asian sovereign wealth funds feature prominently in that group. Secondly, the amount of information many institutional LPs require, and the frequency of disclosure, is much higher. Not all GPs have the bandwidth to cope with these demands on a large scale.

This has a polarizing effect on regional funds. The likes of TPG Capital, KKR, Bain Capital and The Carlyle Group - reportedly looking to raise around $4 billion, $6 billion, $2 billion and $3.5 billion, respectively - are able to put an executive on a plane to Europe when an LP commitment as small as $10-15 million is at stake. Smaller pan-Asian counterparts have no such luxury. By necessity, they are drawn towards larger investors, perhaps even refusing to consider commitments below $75 million.

The trend has to an extent already been borne out in the previous round of fundraising, with MBK Partners, Affinity Equity Partners and FountainVest Partners (not a regional fund, but a country-focused vehicle of scale operated by a relatively small team) opting for concentrated LP bases. We should expect more of the same. Market sources expect PAG to announce a final close on its $2.5 billion debut fund in the next couple of months. By design, the participating LPs could number less than 25; and PAG is said to have reached its $1.7 billion first close based on contributions from just a handful of investors.

Big ticket LPs may be demanding, but across the fund as a whole, they account for fewer sets of financials, fewer capital calls and far fewer phone calls.

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• Topics
• Fundraising
• LPs
• GPs
• Fundraising
• LPs
• Asia