Firms in Asia must have solid track records to attract LPs now that the market has matured and many firms have reached their third or fourth private equity vehicle, according to industry sources.
That scenario has been increasingly playing out in Asia during what could likely be the second consecutive year of decline in fundraising totals.
The latest example came earlier this month when North Asia-focused private equity firm MBK Partners closed its third private equity vehicle on its $2.67 billion hard cap, having been “vastly oversubscribed”, according to a source with direct knowledge of the matter who spoke to Private Equity International.
[LPs] are really focusing on performance. It is not about strategy anymore, it is a little bit less about the markets – it is about showing [them] where you have made money and how your investments are performing
PEI's industry source
The firm raised the fund in less than a year.
All major LPs from the previous vehicle re-upped for the fund, including the Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan. Several new LPs, including a number of US state pension plans, also signed on as well as European and Asian institutional investors, providing a “well-rounded global base”, PEI’s source said.
“[LPs] are really focusing on performance. It is not about strategy anymore, it is a little bit less about the markets – it is about showing [them] where you have made money and how your investments are performing.”
He added that it is now easier for well-performing funds in Asia to raise capital as they have reached their third or fourth vehicles – compared to the early days when first or second time funds didn’t have a track record to rely on when pitching potential investors.
In another successful fundraise during October, startup firm Anchor Equity Partners bucked the general fundraising trend by raising a debut $500 million fund for Korea after a year in the market, PEI reported earlier.
The firm’s success is likely due to its investment team’s track record. Anchor was formed in August 2012 by a handful of Goldman Sachs veterans to target deal opportunities in Korea.
Managing partner Sanggyun Ahn, in his previous role at Goldman, worked on several high-profile Korea deals. He was on the investment team that bought a stake in Kookmin Bank, which Goldman exited in 2003, and he led the investment in Hana Financial Group, which the firm exited in February last year.
The relatively fast fund closings come during a time when fundraising in Asia has been flat. Asia Pacific funds raised a total of $20 billion during the first nine months of 2013, equal to the amount raised during the same period in 2012, according to PEI's Research & Analytics division.
Meanwhile, LPs are also asking for more co-investment opportunities as a condition for committing to a fund, according to a recent study by research firm Grant Thornton.
These days, big LPs around the world expect a share of co-invests
PEI's industry source
Sixty percent of GPs say offering co-investment opportunities are significant in getting LPs to commit their funds, with 35 percent planning to include offering co-investments as part of their strategy for their next vehicles, the report said.
MBK brought in a “handful of Fund [III] LPs” as co-investors in its latest $2.5 billion deal to acquire ING Korea, a South Korean life insurance business owned by Netherlands insurance giant ING Group.
The deal is still in its approval process, but once it closes will be MBK’s largest-ever investment and one of the largest acquisitions of a life insurance business by a financial sponsor in Asia.
“These days, big LPs around the world expect a share of co-invests,” PEI’s source said.