When Kohlberg Kravis Roberts closed its $6 billion pan-Asia fund in July – the largest private equity vehicle ever raised for the region – it was generally perceived as a very encouraging sign for the market.
Institutional investor commitments to the fund indicated “a very strong global appetite for sizeable exposure to Asia”, as Hamilton Lane managing director Juan Delgado-Moreira put it (a view was echoed by many other sources). The sheer size of the fund also suggested that bigger deals may be in the offing, he added. “What we thought that was a limit to deal value is no longer seen as such.” The record fund seemed to affirm that macro concerns are not constraining appetite for Asia’s broadening and deepening market.
But the data suggests an apparently contradictory story. During the last three years, Asian funds targeting $1 billion or more have been taking an increasingly longer time to raise, according to Private Equity International's Research & Analytics division.
As of mid-August, the average big fund closed in 2013 had been on the market for 16.6 months. In 2011, the equivalent figure was 8.4 months.
This year, the fastest large-scale fundraising has been that of RRJ Capital, which took 11 months. But last year, there were four $1 billion-plus funds raised faster than this. And in 2011, there were six.
That’s in marked contrast to North America, where there have been at least five $1 billion-plus funds raised in 11 months or fewer this year (and there were at least five last year, too).
Clearly the macroeconomic backdrop is significant here. The US economy is showing signs of life again just as Asia seems to be slowing. And an end to US quantitative easing – which will lead to higher interest rates – will put a further dent in Asia’s growth.
Moreira: Asia may be less hot than in 2011
“I do think that the bloom has gone off the rose,” Carlyle Group co-CEO William Conway said of emerging markets on a recent conference call. The likes of BlackRock and Temasek have expressed similar sentiments recently.
Dwindling dealflow is also a factor. Private equity-backed M&A in Asia (ex-Japan) fell 20 percent to $12.2 billion from January to August, and volume dropped 30 percent, compared to the same period in 2012, according to Thomson Reuters data.
The lack of exits in China and India, particularly IPOs, means it’s harder for LPs to make fresh commitments.
“Investors want to see more DPI [distribution to paid-in] from the current crop of GPs,” suggests Edwin Chan, regional head of Asia for Probitas Partners.
And the pipeline of new deals matters, too. It’s a key driver of fundraising momentum, adds Niklas Amundsson, partner at MVision Private Equity Advisers. “If a GP has a tangible pipeline with investments closing soon, investors can see a reason for getting in today. Pending deals are a catalyst.”
However, fundraising is a complex business. Different people will interpret this data in different ways.
Delgado-Moreira, for example, believes an increasing average time for raising capital says less about general investor sentiment towards Asia and more about polarisation.
“It may tell you Asia is less hot today than in 2011,” he says. “But the real story is the disparity between quick and slow fundraising processes. Globally, [some] funds are being raised quicker than ever before and others are taking longer than ever before. Post-Lehman, the disparity has been sharp.”
LPs aren’t necessarily pulling back from Asia, but putting more capital into what’s perceived as the most investible fund in the current climate. That’s good for firms like KKR. But it might not be so good for their competitors.