China boosts its firepower

Earlier this year, PE Asia once again compiled the PE Asia 30: a ranking of the 30 MENA and Asian firms that had raised the most capital in the five years to 15 April 2011.  

The list provided clear proof that Asia-focused firms are taking an ever-greater slice of the fundraising pie. Between them, they had garnered just under $81 billion in commitments during the period, half a billion more than the equivalent figure for the 2010 list. That’s an impressive feat, particularly given how challenging fundraising conditions have been since the onset of the global financial crisis. By way of contrast, the five-year fundraising total of the world’s 50 largest firms (as tracked by the PEI 300) has actually been falling by about 5 percent per annum since 2009. 

One of the most striking trends evident from this year’s ranking was the ongoing geographical shift of private equity’s capital base. Although fund managers focused on the Middle East and North Africa (MENA) continue to be responsible for the bulk of capital raised by PE Asia 30 firms, their commitments have been decreasing over the past three years.

As such, it probably won’t be long before they are overtaken by Hong Kong-headquartered GPs. In the last five years, Hong Kong- and mainland China-based fund managers have accumulated nearly $33 billion – a clear sign that investors are keen to capitalise on China’s and Southeast Asia’s favourable demographic trends and strong economic growth. 

And it’s not just Western LPs who will benefit. This year’s totals include a number of RMB funds raised by managers that are now catering to China’s fast-growing domestic LP base. 

In the last few years, the number of RMB-denominated private equity funds has soared – and so has their collective capital. In 2009, more China-dedicated funds were raised in RMB than USD for the first time since China passed its limited partnership law in 2007. And in 2010, there were 71 local vehicles raised, compared to just 11 USD funds (although the latter accounted for a bigger share of the capital collected).

Many of the GPs in the PE Asia 30 – including the likes of Hony Capital (see p.43) – established their track records and reputations with USD vehicles, but have gone on to raise ‘sister’ RMB vehicles that often co-invest with their USD funds. 

There are still concerns that this approach can lead to conflicts of interest: locally-denominated funds continue to enjoy better access to deals and looser regulatory oversight, which means the interests of LPs in the two funds may not necessarily be aligned. But China-focused GPs expect this issue to fade over time, particularly if – as anticipated – regulators eventually allow commingled funds. 

But as Vincent Huang, Hong Kong-based partner at fund of funds Pantheon, told PEI: “We have to wake up to the reality that the RMB funding source is the future in China, and that returns from RMB funds are likely to be better in the near future.” One thing’s for sure: these funds are likely to play an increasingly significant role in the make-up of the PE Asia 30 in the years to come.  

(Last year’s position: 1)
Capital raised: $6.2bn

For the third straight year, Abraaj claimed the top spot in the PE Asia 30 – although the total capital it has raised in the last five years was down slightly on last year’s equivalent figure. This wasn’t the original plan – but, like many Western GPs, it decided to “right-size” the target of its fourth buyout fund from $4 billion to around $2 billion. The Dubai-based firm continues to expand its geographical footprint: this year it opened an office in Mumbai and bolstered its presence in Singapore; a proposed bid to take a stake in Cairo-based Citadel Capital fell through, so it bought Amundi’s North African private equity operation instead. 

(Last year’s position: 3)
Capital raised: $5.4bn

Australasian private equity firm Pacific Equity Partners largely owes its place near the top of the PE Asia 30 to the blockbuster PEP Fund IV, which it closed at A$4 billion in 2008; this remains the largest Australian private equity fund raised to date. PEP put more than $1 billion to work in 2010, and although it hasn’t all been plain sailing in 2011 (it had to pull the proposed float of cinema china Hoyts in March), it recently sold New Zealand-based Independent Liquor for NZ$1.53 billion ($1.27 billion), a drinks company in which PEP owned a 43.9% stake.

(Last year’s position: 4)
Capital raised: $4.7bn

Bahrain-based Investcorp recorded approximately $140 million in profits for the 12-month period ending 30 June 2011, 37 percent up on the previous year. Notable recent exits include the £450 million ($729 million) sale in March of Moody International, a provider of safety consulting and testing to industrial companies, which generated a 3x return. Meanwhile, the firm’s Gulf-focused growth capital team, which was launched in 2007, became a significant minority shareholder in Turkish agro commodities trader and supply chain manager Tiryaki Agro; this $50 million investment came from Investcorp Gulf Opportunity Fund I, a $1 billion MENA- and Turkey-focused vehicle.

(Last year’s position: 18) 
Capital raised: $4.5bn

Hong Kong-based Baring jumped a whopping 15 places this year after more than doubling the amount of capital it has raised over the last five years. The reason for this, of course, was that in February it closed its latest pan-Asian growth fund, Baring Asia Private Equity Fund V, on $2.46 billion, roughly 40 percent over target – after less than five months in market. The firm attributed the popularity of Fund V to the macro-situation in Asia propelling the region at the top of many LPs’ wish lists.