Asia Alternatives plans to raise more capital from its limited partners (LPs) in Asia in light of growing appetite from Asian institutional investors for private equity (PE) products that are focused on the region.
The Hong Kong-based manager of PE fund of funds (FOFs) has carried out five rounds of fundraising – including the recently-closed Asia Alternatives Capital Partners V (AACP V) – since it was established in 2005. The funds were from various global institutional investors, including public and corporate pension funds, endowment funds, foundations and family offices. It currently has total assets under management (AUM) of US$11 billion.
According to Rebecca Xu, co-founder and managing director of Asia Alternatives, the company’s FOFs were heavily driven by North American institutional investors in the early days, but the client base has become more diversified in recent times.
“We’ve seen more interest from Asian and Latin American investors in Asia PE funds over the past few years,” Ms. Xu tells Asia Asset Management (AAM) in an exclusive interview.
She says FOFs dedicated to Asia Pacific, including AACP V, have seen greater client uptake outside of North America because of their need for geographic diversification, and also attractive returns generated by Asian general partners (GPs).
GPs are the PE firm and investors in a PE fund are known as LPs.
Ms. Xu expects Asia Alternatives to secure more business in Asia because of greater interest in PE investments from Asian institutional investors.
“AACP V is the fifth FOFs launched by Asia Alternatives in early 2017,” she says. “Over 25% of its US$1.8 billion capital was raised from non-US markets such as Canada, Europe, Latin America and Asia.”
According to Ms. Xu, AACP V will focus on building a portfolio of top-performing local Asian PE fund managers.
Half of the capital will be used for investments in growth capital, venture capital, and the buyout market in China, another 20%-40% will be invested in the buyout market in Japan and South Korea, and the balance in India, Australia and Southeast Asia, she says.
Ms. Xu points out that that company sets a relatively high target return for its funds in order to compensate for geographic, illiquidity and manager risks.
“For example, to provide a better risk-adjusted return to our investors, our funds are aimed to outperform the equivalent Asian public equity benchmark by at least 500 basis points,” she says.
“Also, we target to achieve from our FOFs portfolio a return that is in line with the performance of the top quartile in the Asian private equity benchmark,” she adds.
