Revealing rumours

False rumours that Affinity plans to raise Fund IV this year indicate some positive things for Asia's private equity industry, writes Jenny Blinch.

The rumour mill in Asian private equity has been working overtime this week after unnamed sources told Reuters that Affinity Equity Partners, the Hong Kong-based buyout firm headed by KY Tang, is aiming to launch its fourth fund in the second half of 2010.

The report said the firm hoped to exceed the size of its $2.8 billion third fund and would focus more on opportunities in Southeast Asia.

But when sister news site PEI Asia caught up with Tang later that same day he denied the rumours. “At this point we have no plans to start fundraising this year,” he said, noting any subsequent plan would depend on the investment pace of Fund III, which closed in 2007 and is still only 50 percent invested.

Though it may have been frustrating for Tang, who has doubtless spent the week fielding emails from LPs, lawyers and financial journalists, the fact that this report was so widely read – and believed – speaks to something greater.

Jenny Blinch

Firstly, it shows that Asian private equity is eminently newsworthy. In the same way that countless speculative reports are written about which Australian private equity-backed firms may be considering an IPO and which pan-regional firms are bidding on divestments like that of AXA’s Chinese insurer Taikong Life, the headlines that private equity attracts reflect the increasing importance of its role in the region’s corporate landscape.

Secondly, it says something about the power of the Affinity brand. In this market, as in all private equity markets, some firms are more equal than others. And despite having some skeletons in its closet – for example the firm has written off $28 million in equity in Singapore-based First Engineering – Affinity is a name that resonates.

After lying low during the worst of the crisis, the firm’s post-transaction involvement in the KKR-led acquisition of South Korea’s Oriental Brewery last July and subsequent $200 million equity-backed buyout of Beijing Leader & Harvest Electric Technologies, a Chinese manufacturer of energy-saving devices, in October, have sent clear signals to the market that Affinity is shaking off the downturn and is in a position to get spending.

As such, even if it is not the firm’s intention right now, it is entirely plausible that it should be in a position to fundraise again by the end of the year – both in terms of having invested enough of Fund III and having the reputation needed to get LPs on board.

Lastly, the story points to broader optimism about the outlook for the Asian private equity market. The fundraising doldrums of 2009 have given way to a spate of fund closes in the past month that have punched above their target and in some cases been heavily over-subscribed. Axiom Asia’s $950 million close on its second fund of funds, which had indications of interest of over $1.1 billion, is just one example.

Against this background, and with banks seemingly willing to begin lending again, it is no great stretch to think the second half of the year will see some of the private equity firms that closed funds in 2007 or earlier return to market, even if there does seem to be more cash than deals in the region at the moment.

While the so-called grapevine may have got the details muddled in this case, it has still provided plenty of food for thought.