Exclusive: FLAG Squadron realigns, readies Asia fund

The firm is refocusing on co-investments ahead of its next Asia Pacific vehicle

The recently-merged fund of funds group FLAG Squadron has made a series of team alterations in Asia, partner Wen Tan revealed to Private Equity International. The news comes as industry sources confirm that the fund of funds is gearing up to raise its next private equity vehicle, which will launch before year-end. 

Tan declined to comment on fundraising, but said the firm has hired two investment professionals, which cannot yet be named due to confidentiality, one to focus on China and the other on South India.

“We are a lot more bullish on China than a lot of folks out there and are actually beefing up our China resources,” Tan said.

Moreover, the firm is shifting its strategy to look at co-investments, as well as bolstering its capabilities in real estate.  

“We’re looking at many more co-investments than before. Since we brought on [partner] Myron Zhu, the co-investment dealflow has gone from a more reactive two or three a month to 10 or 15, and direct and co-investing takes a lot more bandwidth than fund investing.”

“Going forward, having recruited senior, highly experienced investment professionals, co-investments and direct investments will be a much greater focus than it has been in the past.”

He added that while the firm is not increasing its exposure to real estate funds, it sees the need to have the expertise on its investment team.

“A lot of the investments that Asian private equity firms make are not just pure private equity, there is a real estate component as well. We’ve wanted to broaden the skills on the team with someone that comes from a real estate background.”

While Squadron is adding in some areas, the firm is stepping back from Korea, where vice-president Eugene Soh will leave the firm in coming months.  

“We believe there are very, very few investable managers [there]. The issue with Korea is because there are so few investable managers is that if you have done well, you scale up your fund size very quickly, and we are very sensitive to GPs’ fund sizes because data [shows] that [bigger] fund sizes are the enemy of returns.”

Tan adds that the firm is becoming increasingly conscious of its fund cycles and intends to shorten its fund lives going forward.

“We are moving towards much shorter fund life cycles – in private equity one of the key issues is the j-curve and when you have a fund of funds or separate accounts programme, that j-curve gets elongated over a number of years and that money gets deployed over a five year cycle.”

This is becoming an increasingly issue in private equity as investors seek more liquid solutions and focus on performance.

“The object of [doing this] is to minimise the j-curve and that is the model we are moving towards. I wouldn’t say we’re doing one-year fund cycles, but will probably do two-year fund cycles. Historically if you look at Asia funds of funds, they were [typically] about four years, so we’re moving towards the model of, say, instead of deploying $500 million over four years, we would split that in two separate funds so we can quickly get the money to work.”