The current stock market volatility in China is testing investors’ nerves, but Hamilton Lane’s head of Asia Juan Delgado-Moreira insists that while the global fallout could be significant, he and his fellow Asia investment committee members are not just sitting tight.
He told Private Equity International: “I can’t recall Chinese news affecting the US rate decision as sharply as recent news has been perceived to have done. We are not relaxed, or sitting it out. We are busy looking at lots of secondaries, co-invests and directs and our deployment pace on the primary fund side is only a little slower.”
“That is how you invest in Asia. You do not sit in or out of the market, but you play with the mix and rotate countries [and] I think we have been one of the more active players in Asia over the past couple of years.
Delgado-Moreira is keeping a very watchful eye on how slowing economic growth in China is impacting portfolio companies held by GPs his firm has invested with.
“We are talking to our managers closely about what they see in the earnings of their portfolio companies. It is too early to tell, but the main way private equity will be affected is [through] a slowdown in growth rates.”
Delgado-Moreira points out that the firm’s June numbers in private equity were already showing a mark down for Chinese private equity firms and he expects that to continue in the September and December quarterly results.
“The magnitude is not cataclysmic but it will probably be a double-digit reduction.”
He is also looking closely at Chinese sales figures earnings. In the meantime, while high volatility means that the pace of investment and fundraising will be slower, Delgado-Moreira expects that if there is any resilience, there may be some buying opportunities, particularly in the consumer facing sectors.
“Public markets hurting tends to benefit private equity in the mid to long term,” he said.
Areas where Hamilton Lane has been making significant investments have included energy and healthcare, while the group continues to like country specific funds.
It has also been very active in terms of Indian transactions, although markedly less so in Indian funds. “Funds have taken a long time to mature and to deploy in India. That has not changed. Pricing too remains at high levels.
“Private equity prices [in India] follow the public markets as closely as anywhere in the world and pricing remains as high as it was in 2010 or 2011.”
But he added: “If you had an Asia allocation, whether an LP or a GP, and all of a sudden your allocation to China goes down, there is only one significant economy in the region you can go to: India.”
With the US market expensive relative to historic trends, India, certainly in the small and mid-cap space, looks a relative value play, he says.
“There is a lot of activity and attention, partly because of what is happening in China, but there is probably going to be less capital than interest.”
Read the full profile interview with Delgado-Moreira, Privately Speaking: Adapt or die in the October issue of Private Equity International magazine.