First-time funds: Asia

In an era where investors are increasingly focused on experience and track record, it’s arguably never been harder to raise a debut fund. Yet some groups are managing to buck the trend.

Asia’s tough fundraising environment has knocked the wind out of first-time funds. Only $1.9 billion was raised across 14 first-time funds in 2012, down from $13.7 billion across 35 funds in 2011, according to Private Equity International’s Research & Analytics division – an eye-watering 86 percent drop.

So far in 2013, only one first-time fund has closed in Asia: China-based Huatai Zijin (Jiangsu) Private Equity, which held a final close on RMB 2 billion (€248 milllion; $322 million), half its original target. 

Today it takes much more than the Asia growth story to attract investor interest, says Vincent Ng, partner at Atlantic-Pacific Capital. Differentiation is key, and debut funds “need to prove they have sourcing capability beyond what’s out there already,” he says. 

Many LPs now come to first-time funds looking to supplement their current Asia exposure, and thus can afford to be pickier, he adds.

Additionally, Asian GPs tend to have high team turnover, and investors often have no way of knowing whether the fund can stay together. Therefore first-timers have “a greater burden of proof”, says a source at a Hong Kong-based fund of funds.

Subbu Subramaniam, founding partner of MCap Fund Advisors, recalls that his former firm, Baring Private Equity Partners India, raised $1 billion for a $400 million fund without traveling outside its Delhi offices. But for MCap’s maiden fund, which he left Baring to start in 2010, “I knocked on doors, went on my knees and nothing would move investors”.

That said, LionRock Capital was able to close a $500 million fund in less than a year. The key, founder Daniel Tseung tells PEI, was to single out a certain type of LP instead of attempting a more general pitch – which in his case meant leveraging his relationships from Sun Hung Kai Properties Direct Investments (the private equity division of one of Asia’s largest conglomerates, where he was employed for 11 years).

THREE DEBUT FUNDS TO WATCH

1. Anchor Equity Partners (Korea): 
Founded late last year by a group of Goldman Sachs veterans, led by Sanggyun Ahn, the fund secured three significant cornerstone investors early on: Asia Alternatives, Axiom Asia, and Temasek’s Pavilion vehicle. The fund’s focus on the Korean mid-market is meeting demand in what many believe has long been an underserved market. It held a first close on $200-$250 million, and is expecting a second close around $300 million soon, on route to its $500 million target.

2. KV Asia (Southeast Asia):
Launched in 2010 by former Standard Chartered executive Karam Butalia and Vibhav Panandiker, ex-JPMorgan head of Southeast Asia private equity, the firm had trouble raising its original $500 million target for Southeast Asia and India. So it refocused strategy solely on the Southeast Asian mid-market sector – which has historically brought high returns – and decreased its target to $250 million, which allowed the fund to hold a first close in November on over $100 million.

3. Kedaara (India): 
Founded last year by Manish Kejriwal, the former senior managing director of Temasek Holdings Advisors India, the firm now has a joint-venture partnership with US private equity firm Clayton, Dubilier and Rice (CD&R) for minority investments in high-growth businesses seeking to expand abroad. Temasek was an early anchor investor, and even with the general negative sentiment toward India, Kedaara held a first close in late 2012 on $290 million, more than half its $500 million target.