When Juan Delgado-Moreira moved from London to Hong Kong to spearhead Hamilton Lane’s international expansion in May 2011 he had a clear sense of where the firm’s growth sweet spot lay.
“There are a few well-known firms who believe in a more static allocation and they have done that since the 1980s. A third in venture, a third in buyout, a third in special situations. Good luck to them, but we think it has cost them and their clients a lot of return.”
The current volatility in China has made for testing times for investors, but Delgado-Moreira insists that while the global impact could be significant, he and his fellow Asia investment committee members will not just be sitting tight.
“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.”
There is also a soon to be announced tie up with a well-known local player, although Delgado-Moreira is canny enough not to divulge the name until the deal is officially sanctioned.
“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.
“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 a slowdown in growth rates.”
Delgado-Moreira points out that the June numbers in private equity were already showing a mark down [in terms of 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 says.
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 follow the public markets as closely as anywhere in the world and pricing remains as high as it was in 2010 or 2011.
“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 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.”
In 2013, Hamilton Lane co-invested alongside AION Capital Partners in Indian conglomerate Avantha Holdings. This was a structured investment that included equity participation in Avantha’s publicly-listed subsidiary Crompton Greaves, also based in India.
Earlier this year, Advent International, along with Singapore’s LP Temasek acting as an independent co-investor, acquired 34.37 percent of Compton Greaves’s consumer products business, Crompton Greaves Consumer Electricals Limited, in a transaction with an enterprise value of 66 billion rupees ($1.07 billion). This transaction resulted in AION and Hamilton Lane successfully exiting their investment in Avantha.
In 2014, the world’s largest fuel retail network, Sinopec Marketing, created a new shareholder structure. Sinopec Petroleum & Chemical Corp, China’s largest petroleum refining company, sold a 29.9 percent stake in Sinopec Marketing to 25 new investors.
Hamilton Lane joined Fosun International and China Development Bank Capital in the Pingtao (Hong Kong) Ltd, which then invested 2.2 billion yuan in Marketing Co.