Story of the year: The Pan-Asian fundraising goldrush

2018 was the year of the sizeable Pan-Asian fundraise.

The year’s largest included Hillhouse Capital Group’s $10.6 billion Fund IV, the largest ever private equity fund dedicated to the region, followed by The Carlyle Group’s $6.55 billion Asia Partners V, and Hong Kong-headquartered PAG’s $6.1 billion Asia III. Bain Capital in December gathered $4 billion for its fourth buyout fund for the region. Baring Private Equity Asia, meanwhile, has already raised its $5.5 billion target, it is understood.

Capital raised by Asia-focused funds in the first three quarters of 2018 reached $37.8 billion, already exceeding the $37.7 billion gathered in 2017, according to PEI’s Q3 2018 Fundraising Report. If successful, Asia-focused funds in market could add at least another $20 billion of dry powder to the region, PEI data show.

Asia, a younger private equity market than North America and Europe, is proving attractive to institutional investors because of its strong macro fundamentals, increasingly wealthy and tech-savvy millennials and business owners’ growing acceptance of private equity.

The California State Teachers’ Retirement System, the US’s second-largest public pension fund, could double or triple its less than $2 billion exposure to Asia in the next three to five years, chief investment officer Christopher Ailman told Private Equity International in May. Teachers’ Retirement System of the State of Illinois said in August that it will focus on Asia next year as part of its private equity tactical plan, while San Francisco Employees’ Retirement System has backed the TMT-focused Hillhouse Capital Group, which amassed $10.6 billion in September for the region’s largest-ever fund.

Building on the three strong years prior to 2017, Asia private equity achieved its best all-around performance to date last year. Deal value soared to $159 billion, up 41 percent on 2016, exit value at $115 billion marked the second-best year on record and fundraising rose 6 percent to $66 billion year-on-year, Bain & Company noted in the report.

An Asia-focused placement agent said that the GPs on the fundraising trail are marketing on the consistency of their returns, similar to KKR and Affinity Equity Partners, which raised $9.3 billion and $6 billion respectively for their latest Asia-dedicated vehicles.

Bain Capital’s $2 billion Fund II delivered a net internal rate of return of 25.3 percent and a money multiple of 2.08x, while the $3 billion Fund III delivered a 60.9 percent net IRR and a 1.29x multiple as of 30 June, according to Pennsylvania Public School Employees’ Retirement System documents. Bain closed its latest Asia fund on $4 billion in mid-December.

PAG Asia II, a $3.6 billion 2016-vintage fund generated a 28.7 percent IRR and 1.2x money multiple, according to December performance documents by the Washington State Investment Board. Baring’s $3.99 billion Fund VI delivered a net IRR of 18 percent as of July, as previously reported by PEI.

Another factor is the consistency of best practices in the ability to return capital back to investors, the placement agent noted. “Distributions have improved a lot in the last couple of years, but for investors who are waiting in the interim, who will they put their money with? It’s the pan-Asians.

“Investors who want to get exposure to Asia will continue to commit to the large pan-Asian managers until the country-specific funds prove that they can not only deliver mark-ups but also deliver distributions back to investors. That is the theme.”