MSBI mulls $100m commitment to Asia Alternatives

Up to 60% of Asia Alternatives fifth flagship fund, which is targeting $1.3bn, will be invested in Greater China.

The Minnesota State Board of Investment is set to commit $100 million to the latest offering of Asia Alternatives, its first investment in the San Francisco-headquartered fund of funds, according to an agenda item discussed by the pension on 31 May.

Asia Alternatives Capital Partners V (AACP V) is targeting $1.3 billion to invest primarily in Greater China, Japan, South Korea, India, South-East Asia, and Australia.

Nearly 85 percent of capital from AACP V will be invested in primaries, of which between 30 percent to 40 percent will be in small to mid-market buyout funds, around 40 percent in expansion and growth, 15 percent to 20 percent in venture investments and around 20 percent in special situations funds which could include distressed debt, real estate, corporate restructuring and/or structured transactions.

And to further enhance returns, the firm will allocate approximately 15 percent to 30 percent to direct co-investments and secondary purchases of fund investments with either the firm’s existing managers or those with “strong potential to provide future fund investments”.

Greater China investments will make up majority of the fund (45 percent to 60 percent); Japan and Korea, between 20 percent to 40 percent; India, 10 percent to 20 percent; and South-East Asia, the remaining 10 percent to 20 percent. Given the dynamic nature of Asia’s private equity landscape, the firm said these allocations may fluctuate as much as +/-10 percent during the life of the fund, which is pegged at 10 years.

The firm expects to invest in about 20 fund managers, 60 percent of which are from its core manager relationships, about 20 percent in first-time managers and the remaining amount in core primaries.

Asia Alternatives has backed funds managed by Chinese agri-focused firm Hosen Capital, North Asia-focused MBK Partners and Beijing-headquartered firm CDH Investments. PEI data show.

The firm’s management fee is 1 percent of commitments, which will be reduced to 0.5 percent after the closing of a subsequent fund as well as the expiration of the commitment period. When the underlying investment has returned 85 percent or more of cost, no more management fee is charged on that investment, according to the terms of the limited partnership agreement for AACP V.

The firm also expects to make a GP commitment of up to 1.25 percent of the total capital raised.

Fund V is larger than its predecessor which closed on $948 million and has delivered a net IRR of 10 percent and a return multiple of 1.1x, as of end-September 2016.

Limited partners in its fourth flagship vehicle include the Florida State Board of Administration, Teachers' Retirement System of the State of Illinois and the San Francisco Employees' Retirement System, according to PEI data.

Along with Asia Alternatives, MSBI is also looking to invest $200 million in Lexington Partners’ fifth co-investment vehicle and €150 million in Nordic Capital’s ninth buyout fund.