AVCJ

Which way for Asian private equity?

  • Paul Mackintosh
  • LinkedIn  
  • Google plus  
  • Save this article  

The release of CalPERS's latest fund performance results comes at an interesting time.

While there are still so many big funds out there not fully invested, there is certainly a sense that the industry is at a turning point, and perhaps about to take a new departure, potentially in a different direction.

For one thing, persistent industry talk suggests that some of the big names and big funds familiar from the previous few years are unlikely to take the same form – in shape or scale. Over the next few years, GPs are often going to struggle to raise vehicles much above $1 billion, with LP sentiment rather swung against the multi-billion-dollar buyout platforms. This is as much a question of compensation and incentives as performance and returns. A significant number of LPs now seem to believe that at least some GPs are just too well rewarded and insufficiently incentivized by the management fees to truly deliver outperformance. The top performers will see successful closes, but the consolidation pressure at the high end of the industry may be fierce.

Some in the industry proffer the view that LPs are turning their attention to funds of $1 billion at most, more closely matched to the size of accessible Asian businesses and more likely to be managed by hungry, well-incentivized teams. These might be growth funds tapping the fashionable China and India stories, but their size and structure is as central to their value proposition as their target economies. No one seems to feel that major institutions’ former reluctance to deal with smaller ticket sizes is going to hinder commitments to these leaner and keener vehicles.

But if this is really where the Asian industry is going, then it’s also interesting to report some movement in quite the opposite direction. For one thing, certain markets in Asia Pacific, notably Australia but also Singapore and elsewhere, are seeing significant deal flow and solid exits for buyout funds. Healthscope was a good enough result for Carlyle and TPG, while CNS looks in line to be a win for MBK and a significant acquisition for the likely buyers. Primus may have stumbled over Nan Shan in Taiwan, but with $2 billion+ assets potentially accessible in the region, there is no shortage of opportunity.

Furthermore, some seriously smart money is betting on the revival of Japan, little appreciated in recent months and years. The opening of HarbourVest’s Tokyo office is one of the more significant signs that the Land of the Rising Sun could be returning to its previous prominence in the industry. And all this comes as buyouts globally are seeing a resurgence, with deals worldwide in the last quarter nearing $63 billion according to some data, the highest level since early 2008, and emerging markets well represented in the overall activity.

But how to reconcile two such contradictory trends? Well, they could both be right, if the industry really is moving away from the plain-vanilla, pan-Asian, one-size-fits-all buyout fund, and toward the broader, more complex and sophisticated structure that many have been predicting for some time.

These are not the only trends evident in the industry right now. More on the others soon. But they are certainly a couple of the most thought-provoking.

Further reading

  • LinkedIn  
  • Google plus  
  • Save this article  

More on Funds

Latest News

world-hands-globe-climate-esg
Asian GPs slow implementation of ESG policies - survey

Asia-based private equity firms are assigning more dedicated resources to environment, social, and governance (ESG) programmes, but policy changes have slowed in the past 12 months, in part due to concerns raised internally and by LPs, according to a...

  • GPs