Asia fundraising: A box-checking exercise

The last point is significant. FountainVest was always likely to be able to call on the support of the anchor LPs in its first fund, Ontario Teachers' Pension Plan (OTPP), Canada Pension Plan Investment Board (CPPIB) and Temasek Holdings, each of which has the ability to write large checks.

These investors accounted for the bulk of FountainVest China Growth Capital Fund I, which closed in 2008 at $950 million, and they are responsible for most of the $1 billion that has so far been committed to its successor. Washington State Investment Board is the other significant player in the first close, having agreed to put in $150 million.

The original target of $1.25 billion for fund II is now likely to be pushed up to $1.35 billion. It is larger than its predecessor but not to the extent of some China funds, or regional funds for that matter, so it is unlikely to worry LPs. And let's not forget that these investors are limited in number compared to many Asian GPs, which means less time spent on the phone assuaging concerns.

FountainVest's China touch points aren't necessarily that original - the rise of the middle class and domestic consumption, urbanization and industrialization, and sustainable development - but investors appear to have been convinced by the performance of fund I and the pedigree of the founders and their supporting investment team.

So what is the takeaway? It goes back to GPs who tick the appropriate boxes.

Asia-Pacific fundraising was by all accounts a disappointment in the first half of 2012. Fewer than 100 funds achieved a close during the period, attracting a total of $22.3 billion, the lowest level since 2009.

China has been bolstering the regional numbers for quite some time - renminbi funds, principally large state-backed vehicles, accounted for nearly two-thirds of total capital raised, up from 45% in 2011 - but the country is now in decline. China-focused funds attracted $17.7 billion in the first half, down 22.6% on the second half of 2011, with fewer than 50 vehicles achieving a close, compared to around 100 in each of the previous two six-month periods.

The list of top fund closes is inevitably populated by those state-linked China vehicles, but sweep those away and you get a clearer picture of what is going on. Amongst the top 25 sit Saratoga Asia III ($600 million) from India, ChrysCapital VI ($510 million), Nexus India Capital III ($267 million) and Helion Venture Partners III ($255.3 million), all from India, and Australia's CHAMP Ventures Investment Trust No.7 ($494 million) and Archer Capital Growth Fund 2 ($306 million).

Several of these come from markets where the fundraising is said to be particularly difficult, but they have nevertheless come in oversubscribed. This is because they meet the criteria of an increasingly diversified yet ever pickier LP base. To varying degrees, they represent investment opportunities that are difficult to find elsewhere, blue chip GPs that have always led their respective markets, and investment strategies that are both proven and not threatened by unsustainable fund sizes.

LPs are resolutely in flight-to-quality mode. Without a seed investor that takes on a lot of the risk in return for minimum fees, co-investment rights and a significant amount of control over the manager, GPs that don't tick the right boxes will struggle.

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• Topics
• Fundraising
• Greater China
• FountainVest Advisors
• Fundraising
• China