Amid global institutions turning to Asia for diversification, the limited supply of large, quality assets in the region means most LP end up overpaying, according to Dave Brochet, managing director and head of Asia at Caisse de dépôt et placement du Québec.
“It is effectively challenging to put big bucks to work on both direct investments and fund commitments. In Asia, large, quality assets are scarce and when you find them they command a premium,” Brochet said last week at the HKVCA Asia Private Equity Forum. “You have to be willing to overpay in order to buy these assets and deploy capital.”
The C$290 billion ($230 billion; €190 billion) investor opened its Asia Pacific hub in Singapore in 2014 and has offices in New Delhi, Shanghai and Sydney. To date, CDPQ maintains about 40 GP relationships, with mainly US dollar-denominated funds, but only six of these are Asian GPs, according to Brochet. These include the Indian private equity firm Kedaara Capital and North Asia-focused MBK Partners, according to PEI data.
“Getting our allocation [in Asia] has been challenging,” Brochet went on to explain. “Overall, whether it’s direct or fund investments, we would usually commit between $200 million and $700 million per deal. In Asia when you find a quality fund, a quality partner, whom you want to build a relationship, usually as a new investor it is very challenging to deploy.
In the last four commitments that CDPQ made in Asia for instance, Brochet said the committed capital ended up being lower than the investor’s intended allocation.
Even in the case of direct investments, while CDPQ typically buys minority stakes of about 30 percent, Brochet admitted that the biggest issue in Asia is still the small ticket size of investments. Some of CDPQ’s direct investments in the region include a $150 million commitment to India’s renewable energy sector, as well as significant investments in Edelweiss Financial Services and TVS Logistics.
However, despite the scarcity of large assets, Brochet maintained that the region has a compelling growth story – driven mostly by urbanisation and a growing middle class – and is “too big to be ignored”.
The pension’s private equity portfolio currently stands at $25 billion, of which 5 percent is invested in Asia. Direct investments currently make up 70 percent of the portfolio, while fund commitments took up the remaining 30 percent.
He said: “We have China which will be the world’s biggest economy by 2030. In fact a lot what’s happening here in Asia in the technology sector, particularly in China, is going to affect the rest of the world. We clearly we need to be in Asia.”