Asia funds of funds buck down year

Fundraising amounts for funds of funds targeting Asia doubled in 2012 while primary fundraising for the region fell substantially.

In a particularly tough fundraising climate, funds of funds targeting Asia raised $3.34 billion in 2012, more than double the amount raised in 2011, according to Private Equity International’s data division.

The totals shine against the background of overall fundraising in Asia, which fell 30 percent to $31 billion in 2012 compared to the previous year, PEI data shows (the figures include FoFs). 

Top five fund of funds targeting Asia in 2012

Axiom Asia Private Capital $1.15bn
Asia Alternatives $908m
Pantheon Ventures $700m
Chengding Environment Industrial $320m
United Overseas Bank (UOB) $162m

Source: PEI's data division

In March, Axiom Asia, which spun out of the Government of Singapore Investment Corporation, closed the year’s largest fund of funds targeting the region on $1.15 billion.

Despite the general trend of consolidation in the funds of funds industry, they remain relevant to distant LPs who increasingly want to allocate to the region, sources said.

“An increasing number of new investors want exposure to Asia and don’t want to pick the funds themselves,” said David Love, partner at Eaton Partners, the placement agent that helped Asia Alternatives’ raise its recent funds.

Michael Henningsen, project manager at Park Hill, believes that the performance of funds of funds in an otherwise down year is reflective of the general investor interest in emerging markets. “A lot of LPs are still very eager to allocate to the region and fund of funds are a natural first step to do this,” he said. 

Within Asia, fund of funds are still highly relevant because of the differences in markets and cultures, the growing number of domestic fund managers and Asia’s geographic distance from investors, he added.

Some funds of funds have also been successful in setting up separately managed accounts to be able to service large LPs. “Those that can differentiate themselves and those that have very deep roots in Asia will be successful,” Henningsen said.

Regardless of the type of fund, many LPs have become more careful and discerning than before and probe deeper with questions before making an investment, sources said.

Love added that the main recurring questions from LPs for the Asia Alternatives fundraise centered on the macro picture in Asia. 

LPs who had made good returns in the past through growth equity investments and an IPO exit wanted to know if the environment had changed so much that investors should no longer allocate capital to China. A second recurring question was whether anybody can make money in India given the current high valuations.

“We were able to answer those questions and received commitments from both reupping LPs and new investors.”