Baring PE Asia ponders mid-market fund after closing latest flagship

Baring Private Equity Asia is considering a new mid-market strategy to pursue the opportunities left behind by its latest flagship, Private Equity International has learned.

The Hong Kong-headquartered firm closed BPEA Fund VIII on $11.2 billion, more than 31 percent larger than its target and 72 percent bigger than its 2020-vintage predecessor, chief executive Jean Salata told Private Equity International. The fund – which had been in market since March 2021 – comprised 180 LPs, of which 70 were new to BPEA and accounted for 23 percent of capital raised.

BPEA Fund VIII will target larger deals than its predecessors, typically averaging $1 billion of enterprise value, Salata said. The vehicle will also represent EQT’s debut foray into the Asia large-cap space.

European private equity giant EQT has traditionally invested in the region via a series of mid-market funds and had planned to launch its own family of large-cap vehicles, but paused these ahead of its planned merger with BPEA in Q4 2022.

BPEA is considering working on a mid-market vehicle that could pursue opportunities that are now too small for its latest flagship fund, Salata said.

“As our fund size has increased, there is this kind of white space that we’ve left behind, which is the mid-cap space where we’ve historically been very successful in operating, where we continue to see dealflow,” he added.

“We’re putting a lot of thought into this right now – we’ll probably be coming back with something more structured and concrete in a short period of time. It’s logical and I think an opportunity for us to have a separate pool of capital that continues to invest in the smaller mid-sized deals that would continue essentially the strategy of Funds VI and VII but tag alongside what we’re doing in the big flagship fund.”

EQT had an existing mid-market Asia business prior to the merger. “We want to use the whole platform, is the way I’m thinking about it. The idea is that we don’t have separate teams, but that really everybody has the flexibility to cover companies in their sectors and the countries regardless of size,” Salata noted.

BPEA Fund VIII is one of the largest Asia-Pacific private equity funds ever raised, and qualifies BPEA for an exclusive club of managers that have surpassed the $10 billion mark in the region. This group includes KKR, Hillhouse Capital, SoftBank’s Vision Funds and a number of yuan-denominated China funds.

Internal BPEA and EQT staff committed about 6.5 percent of the fund, Salata said.

This latest flagship comes at a challenging time for some Asia-Pacific fundraisers. Geopolitical tensions, pandemic-related travel disruption and a regulatory crackdown last year have diminished Western LP appetites for Chinese private equity, which historically has attracted the lion’s share of the region’s fund capital.

“We didn’t hear too many people saying they want zero exposure or they never want to invest in China, but we did hear a lot of people saying, ‘We like the fact that you guys have some exposure to China, but exposure to the rest of the region as well’. And if you look at our numbers, actually it’s about 15 percent of Fund VIII that’s invested directly in China and about 85 percent that’s invested elsewhere, with India actually being our largest market.”

A congested and uncertain fundraising environment globally led to BPEA Fund VIII spending longer in market than some had expected.

“A lot of things changed very quickly, and that caused a lot of investors to have to readjust their own fund commitment plans, so it took a bit more time to get through that,” Salata said, noting that some of the new investors had existing, strong relationships with EQT. “It’s [also] just been a very crowded fundraising market with a lot of funds in the market, so investors have been overwhelmed with requests for re-ups and new commitments, and we wanted to basically give people enough time.”