Side Letter: PAG’s Shan on ‘geopolitical risks’; PE’s private wealth catalyst; December’s deal drop

Just happened

PAG’s Shan: we’re extremely mindful of geopolitical risks (Source: Asian Financial Forum)

Navigating stormy seas
What’s the secret to success in Asia-Pacific private equity? Understanding the macroeconomic and geopolitical landscape. That’s according to Weijian Shan, chairman and chief executive of pan-Asian giant PAG. Speaking at Hong Kong’s Asian Financial Forum on Thursday, Shan told delegates that “the geopolitics risks are very real nowadays”.

“You used not to have to think about it,” he said. “Now you really have to think about it. You really have to think about decoupling risks; you really have to think about restrictions to international flow of goods, people and capital. So, we are extremely mindful of that.”

Illustrating his point, Shan said the firm’s investment strategies in China and India are “completely opposites to each other”. In the former, PAG does not invest in export-driven or cross-border opportunities due to rising labour costs, tighter profit margins and geopolitical risks. “In China, we only invest in businesses which cater to domestic consumption,” he noted. “In India, by and large, we only invest in businesses which rely on cross-border transactions, but not cater to domestic consumption. And you know why? Because historically, until very recently, [the] rupee has been very weak – if there’s a devaluation, of course you lose a substantial part of your principal capital.”

Shan’s comments follow a challenging year for Asia-Pacific fundraising. Funds in the region had raised $71.8 billion as of mid-December, substantially lower than the $103.9 billion collected for the whole of 2021, according to Private Equity International data. Though Shan did not comment on fundraising, PAG is reportedly seeking $9 billion for PAG Asia Capital IV. The firm’s apparent grasp of an increasingly complex geopolitical and macroeconomic environment may well prove a key factor for LPs who have grown warier of the region in recent years.

New entrants to the PE party
PE’s difficult fundraising environment among institutional investor is proving a tailwind for wealth and retail platforms. That’s according to Tarun Nagpal, former global head of alternatives and multi-asset solutions at Deutsche Bank and founder of alternatives platform S64. “GPs on the one hand other are doubling down on the retail thematic – making announcements, hiring, they’re all moving at pace,” he tells Side Letter. “The environment has speeded that up, given the challenges in fundraising in the institutional market with the denominator effect,” he says, adding that private wealth clients and distributors need diversification from fixed income and equities.

As such, S64 which launched in 2020 is set to hit its AUM target of between $5 billion and $7 billion this year, Nagpal said. S64 has won mandates from most of the 10 largest private markets firms globally as well as private banks and ultra-high-net worth investors, PEI reported in September. The firm’s product offerings include the structuring, delivery and servicing of European Long-Term Investment Funds; UK Long-Term Asset Funds; and open-ended semi-liquid retail products.

With fundraising among traditional LPs looking set to remain a challenge this year, it’s little surprise that Nagpal anticipates more entrants into the private wealth arena. “There are a lot of products that will go out and what is yet to be seen is how the reaction to all that product is going to be over the next couple of quarters,” he says. “Will there be some short-term volatility? I’m sure there will be… but I’ve seen very little to detract from the long-term secular thematic.”

They did the math

PE’s December decline
PE and VC deal volume in 2022’s final quarter was down 44 percent year-on-year to 3,220, per a report from S&P Global Market Intelligence. Overall deal value also more than halved to $139 billion, from $295 billion in 2021. December recorded the lowest monthly tally by number of deals at 957, down 58 percent from the prior year. It was also the only month where total deal count fell under 1,000. While some degree of slowdown might be expected during the festive season, December’s miserly numbers and a downward trend for the year suggest a difficult macroeconomic and fundraising environment has started to weigh heavy on deal activity.

Essentials

New year, new role
Promotions and hires are underway as PE kick starts 2023. Here are a few of the latest:

  • Fund of funds Quilvest Capital Partners has made two hires into its investor solutions and capital raising team. London-based Sanjay Kohli joins from Investcorp as global head of the team, with New York-based Philip Marchal joining from Probitas Partners to head up its North America efforts.
  • UK mid-market firm YFM Equity Partners has tapped Jade McGrath as head of talent network to support existing and new portfolio investments. McGrath joins from Colliers UK where she was working within its UK talent acquisition team.
  • Secondaries giant Lexington Partners has promoted seven to partner. Five will focus on secondaries: Charles Bridgeland in London, Matthew Hodan in Menlo Park, John Lee in Hong Kong and Clark Peterson and Taylor Robinson in New York. Lutz Fuhrmann in London and New York-based Craig Stevenson both focus on co-investments.
  • French secondaries firm BEX Capital has also promoted Youssef Kameche to partnership, our colleagues at Secondaries Investor reported (registration required)

Today’s letter was prepared by Alex Lynn with Carmela Mendoza and Madeleine Farman.