Undoubtedly, investors both foreign and domestic are scrambling for a piece of China as its vast number of opportunities continues to grow, according to placements agents asked where the hottest geographies are for private equity in Asia.
“China is clearly Asia’s most popular market, accounting for nearly three fourths of funds earmarked for the region in the first nine months of 2011” says Victor Quiroga, co-founder and partner at Triago placement agency, who is not alone.
Conrad Yan, partner at Campbell Lutyens and head of the agency’s Hong Kong office, said: “Growth is the reason LPs are interested in Asian private equity. However, this is not just limited to “growth capital”. In general, investors are being attracted by the overall economic growth in the region. This is being fuelled by a wide range of factors including China's expanding consumer market, ASEAN's burgeoning demographics and India’s concerted efforts to keep up with their Chinese neighbours.
Investors are not easily frightened away from the region due to the sheer size and diversity of opportunities across the continent. However Yan highlighted some potential problems feared by investors: “The greatest challenge is due diligence. Unless an LP has a local presence, they will find it difficult to conduct enough meetings to form an educated view.”
“Even if they secure enough meetings, they may not see enough track records to make a clear judgement. When they have enough track records, the fund may have grown to a larger scale, the market may have shifted, or there may simply not be sufficient allocation to accommodate them. Therefore, LPs have to have some appetite for exercising early judgment in order to be successful. That said, this is deterring some LPs, whilst creating opportunities for others.”
If this is the main problem causing investors to hesitate in the region, Mounir “Moose” Guen, founder of MVision, offers another suggestion: “Historically, the most seasoned and experienced general partners in the region are in Australia.” He says that the Australian market offers both the experience of developed private equity markets, with the benefits of neighbouring the fast growth Asian economies.
“You have the experience, you have the seasoning, you have the transparency, you have the reporting, you have consistency and you have professionalism. And you have the history.”
So, following stellar results in both private equity buyout activity and fundraising, Australia may indeed be one to watch amidst the fast-growing countries elsewhere on the continent.