As a smaller LP with an on-the-ground presence in the region, how do you choose your GPs in Asia?
We tend to step back each year and think more about strategic themes for the coming year as opposed to quantitative targets. Those may be tactical moves in certain geographies, investment stage or asset classes. For example, [in 2013] we continue to be interested in Southeast Asia, niche, distressed or special situations investments and certain aspects of the China market.
In Asia, assessing how historical track records apply to an ever-changing market is always a bit of a question mark. One key element for us in managers [is whether they] understand risks well, and are comfortable discussing potential challenges. Clearly, they’re starting a fund because they think there are unique opportunities. But we believe it is important the manager also has a clear sense of the risks. For example, I find it very helpful if they can articulate what hasn’t worked in the past and what lessons were learned. Too often, managers think that’s a sign of weakness, but I think it shows confidence they know their market.
ESG investing is not a high priority in Asia generally. Have you found this to be true and have you run into any ESG-related problems with your potential investments?
The short answer is no, we have not, but that could be more the result of careful manager selection in the pre-diligence process. Before we ever get to the stage where those questions become relevant, we’ve already screened the managers so that we know which ones take this seriously. And for us, it’s more than just a passing consideration. We want to make sure that returns are never coming at the expense of ESG issues. And it’s not specifically because we’re a church fund – ultimately you won’t be successful in business or investing if you haven’t paid attention to the dignity of employees, governance, the environment, etc. In some cases [in Asia] ESG is not yet a fully developed concept, [but] in my view this is more due to a lack of awareness as opposed to blatant disregard of their responsibilities.
As a smaller LP, what competitive differences do you have with Asia’s larger LPs?
I don’t think we compete [with other LPs in Asia] so much as seek areas to cooperate and share ideas about good opportunities to invest together. I have noticed, however, that there are some natural differences between large size investors – who are often managing a hundred billion or more – and mid-size funds like the Church Pension Fund. For much bigger funds, it can actually be a challenge to deploy the necessary amounts every year. If an investor needs to commit $100 million or more per investment, the fund has to be quite large. Most LPs are reluctant to [commit to] more than 10 percent of the fund size. Our investment size is typically $10 million – $20 million, so we can invest in large size funds, but we are not reticent about helping to fund emerging mid-size managers. So overall, in Asia, LPs don’t compete as much as they may in other markets or during periods of aggressive liquidity. It tends to be a much more collaborative setting among LPs.