Why is ICG increasing its fundraising capabilities in Asia Pacific?
Apart from the fact that Asian LPs are becoming more important, we have a lot of existing Asian LPs, so it was necessary to improve contact with them.
Asian LPs have always been supporters of mezzanine both in Europe and Asia. But I think that the very substantial sovereign wealth funds and larger pension funds in Asia have started to look more internationally.
For example, in Europe, once it was clear that the Euro wasn’t going to disappear, then the recovery of Europe was interesting to Asian investors.
There is a general belief that if you walk into an Asian sovereign wealth fund you can get a ticket of $300 million or $400 million and it helps your fundraising by attracting smaller tickets. But it isn’t always like that and you have to be in the right asset class at the right time.
[Asian LPs] are just more aware of [credit]. For example, Japanese investors are being visited continually by debt funds out of the US giving them proposals for yield and higher-ranking debt in the capital structure of assets
Are Asian LPs attracted to the credit opportunity globally?
LPs in general are very interested in yield. They like the idea of getting cash yield [and] they like the idea of being higher up the capital structure. There are pools of capital looking higher up the capital structure because the risk/return ratio is acceptable to them. And if you look at vintage performance, certainly for our funds and some in our peer group, the performance has been acceptable to them.
[Asian LPs] are just more aware of [credit]. For example, Japanese investors are being visited continually by debt funds out of the US giving them proposals for yield and higher-ranking debt in the capital structure of assets. They’re looking for opportunities [in Europe], also [in Asia], not only in their domestic environment but across Asia.
There is always the issue of saying, `There are a lot of opportunities in the domestic market, so do I need to look outside?' But increasingly, with the amount of money [LPs] are managing, they can’t just deploy it within their domestic countries, they need to look outside. And when they look outside, should they take increased risk? Probably not. So if they can get their returns, credit is a good space for them.
Where do you see the key investment opportunities for firms like yours in Asia?
There are two parts: mezzanine funds and senior debt funds. If you look at the mezzanine funds, we’ve seen a pickup in activity across all of our geographies [in Asia], which are Japan, South Korea, Greater China, Singapore, Australia and New Zealand.
But that is because we do three things. We do mezzanine for buyout sponsors, we do sponsor-less deals, where we are the minority equity [holder] alongside management or other shareholders, and we do capital restructuring, when businesses that fundamentally aren’t in distress need to change their capital structure because [for example], they need liquidity or simply need more time to implement their business plan.
If you look at the senior credit space, there is a lot of opportunity. Australia is a place we believe we can deploy senior debt direct to SMEs and participate in syndicates of debt. There has been huge demand and clearly [the international banks] have withdrawn from the market. In fact, just recently there was a syndicate put together, which didn’t include any of the traditional Australian banks. It was all institutional debt funds.
However, the slowest level of pick-up [has been] in primary leveraged buyouts. That will take some time for that market to come back – we’re seeing some, but not seeing the activity we were five years ago.