Asia: that special something

In January, it emerged that RRJ Capital, the Hong Kong-based private equity firm formed by the Ong brothers, was coming back to market with its third pan-Asian fund targeting $4 billion.

RRJ was founded in 2011 by Richard Ong, one of the three co-founders of Hopu Investment Management, and his brother Charles Ong, a former executive at Temasek Holdings.

The firm, which has successfully raised two private equity vehicles and maintains close ties to Temasek, has already received $3 billion in soft commitments for the fund – its largest offering yet – painting a rosy picture for private equity firms hoping to raise institutional money to invest in Asia in 2015.

In 2014, private equity firms focused on Asia raised $36 billion, a 21 percent increase on the $30.3 billion raised the previous year, PEI Research & Analytics data shows.

This year will likely see another respectable total: Baring Private Equity Asia is closing in on $3.85 billion for its sixth vehicle, with market sources confident the fund will reach its hard cap.

Meanwhile, rumours are circling that Bain Capital and PAG are plotting their next Asia ventures, the pair having raised $2.3 billion and $2.5 billion respectively last time around, while Headland Capital Partners is in the market with a $1 billion fund.

While the numbers are positive, they are a far cry from the $63.6 billion raised in 2011. Despite optimistic sentiments from GPs in Asia’s main economies, the region continues to compete with funds globally and the rebounding economy in the US is deflecting capital away from emerging markets.

As one industry source puts it: “If we need to do something in Asia or emerging markets from an investment perspective, it needs to be something pretty damn compelling.”
This sentiment rings true across the deal size spectrum.

“We’ve seen an oversupply in large-cap [funds] in this cycle in terms of the capital they’ve raised, as well as the large country-focused funds,” Dongao Yan, principal at FLAG Squadron, explains.

“Now we’ve seen a few smaller pan-Asian managers come to the market. Some of them can get what they want but some of them are struggling because they tend to compete with the local players. They are less appealing to LPs unless they can really prove they have unique deal sourcing capabilities in each of the markets that they operate.”

RRJ, while joining the throng of large-cap funds in the market, seems to offer that special something.

Combining hedge fund and private equity styles of investing, RRJ retains a global strategy (always with an Asia angle) and broad investment scope, from buyouts to growth to structured finance, which is unique.

“They focus on liquidity, so their exits are their selling point,” one source says, adding that the stream of distributions creates a stellar IRR. “It is still private equity, but they really know how to navigate the public markets [for exits].”

Notably, in 2013, RRJ exited its investment in US-based Cheniere Energy. Exact return figures are unknown, but it is understood the firm made a significant gain, and later subscribed to $1 billion worth of convertible notes issued by the firm.

“What we’ve heard from many LPs is that differentiation between the larger pan-Asian funds is becoming more and more difficult to make,” Javad Movsoumov, who leads UBS’ placement agent business in Asia, says.

“If you want to raise a lot of new capital, you have to show some differentiation, and the easiest differentiation to show is on returns. So if you have a strategy that delivers very good returns, it is easier to get attention.”