After a challenging 2006-2010 period, the performance of private equity in India has seen a clear improvement over the last few years as the demand and supply of capital improved, and the maturity of these (PE) firms came into play, and this, coupled with the “recent liquidity drive and improving macro environment" has definitely revived the broader LP (limited partners) interest in the Indian market, Yar-Ping Soo, partner (Singapore), Adams Street Partners, said in an interview.
She said Adams Street was a long-term believer of this region, but maintained significant selectivity in its Indian investments. Yar-Ping, who primarily specializes in Asian pan-regional leveraged buyouts as well as country focused funds, specifically in Greater China, Japan, Korea and Indonesia, said that private equity firms and their advisers have done a good job of educating the investors’ community of the consumer story in both India and South-East Asia (SEA). “Alongside technology, consumer is now considered one of the main investment themes in these regions. Healthcare and education are also becoming increasingly popular themes for these markets," she added. Edited excerpts:
How do LPs view a market such as India—considering that the country has not really delivered for GPs (general partners of PE firms) in terms of exits? While everyone talks about India being a massive opportunity, where does it stand on the LPs radar? We are also finally seeing a significant amount of challenged capital getting recycled in India—the recycling of capital, how much has it helped revive LPs interest?
As the third largest economy in Asia, India is an important part of most LPs portfolios that have an Asia allocation, second only to China. Performance of funds raised from 2006-2010 has been challenging for a variety of reasons, but we have seen clear improvement over the last few years as the demand/supply of capital improves and GP maturity comes into play. The recent liquidity drive and improving macro environment has definitely revived the broader LP interest in the Indian market. Adams Street is a long-term believer of this region; however, we maintain significant selectivity in what we invest in the country.
The prospects of China have been less encouraging of late. Against this mindset, for investors looking at Asia, do you see them deciding to refocus their attention on India and South-East Asia?
Overall, there are definitely more pockets of opportunity within Asia than in previous years. Performance in India has been trending in the right direction, and we are seeing attractive returns being generated in what were previously lower-growth, but more stable, markets like Japan, Australia and Korea. China will not disappear from the minds of investors, and continues to be a scale market for venture in Asia.
When it comes to India and South-East Asia, for the global LP community, how aware are they of the ongoing consumer boom? Is this a key factor for higher allocations to these regions?
The GPs and advisers have done a good job of educating the LPs of the consumer story in both India and South-East Asia —alongside technology, consumer is now considered one of the main investment themes in these regions. Healthcare and education are also becoming increasingly popular themes for these markets.
Have LP’s views of Asia changed during the course of time? How do they view Asia-Pacific as part of a global portfolio?
Private equity in Asia has developed significantly over the past 20 years. PE is now an integral part of the financial markets, and is a form of risk capital widely accepted by entrepreneurs, corporations and policy makers in the region.
In the last two decades, the Asian markets have also evolved—they’ve become more integrated, and now play a significant role in the context of global financial markets. Today, Asian economies are almost 40% of the global GDP, up from 25% in late 1990s. Asian private equity is 12% of global private equity, up from a meagre 5% in 2000.
Over time, allocations to Asia have become an important part of a global portfolio, rather than simply an opportunistic play. Asia PE investments also are a key source of diversification—given their higher relative growth rates. Adams Street Partners’ Asian PE allocations mirror this trend.
With Asia seeing an investment boom, how have the LP-GP dynamics changed? Today LPs have a far higher range and number of GPs to choose from—has that changed the equation? How does Adams Street Partners view the investment opportunities in Asia in terms of deal flow, availability of good deals and valuations? Also, is there a vision to grow your Asia play in the mid-term and how much?
With the continued maturation of the global private equity industry, Asia now has a more experienced pool of investors—these individuals were developed through established firms, or were veteran investors who spun out to raise their own funds. While there are a lot more options for LPs today, the most sought-after funds and managers are still able to raise capital quickly and command market terms.
The number of high-quality Asia PE managers continues to increase, and there’s a new generation of experienced, young, and hungry GPs quickly gaining traction in the market also. However, regardless of the investor’s status as a veteran, or an up-and-comer, a detailed knowledge of the market and ability to act quickly is vital when it comes to picking and accessing the “real deal".
Overall, how is the co-investment scene in Asia? Are LPs increasingly implementing private equity co-investment programmes as a means to reducing fees —in such a competitive environment are GPs offering co-investments to their investors without management or performance fees.
There is strong competition for co-investment, with the sovereign wealth funds (SWFs) taking a majority of the market share. Increasingly, the ability to act quickly and, in some cases, even co-underwrite a deal has become a major differentiating factor. Quite often there is a mutual need regarding co-investments, with GPs requiring co-investor dollars to secure a transaction that is larger than their fund can support. To incentivize high quality LPs to participate, a majority of GPs still offer co-investment without fee and carry.
For LPs investing in Asia, has it been a challenge to remain focused on the selective assets that they invest here, keeping in mind that the market is highly heterogeneous, complex and each country is in the different place in terms of maturity? Has there been a lesson learnt in this regard?
Adams Street has been investing in Asia for the past 15 years, and our biggest takeaway is the vital importance of having “boots on the ground" local investment professionals who can navigate the complex heterogeneous markets of the region. Given the dynamism in the market, frequent communication with GPs is incredibly important for sourcing and due diligence purposes. We structure our investment teams to ensure they can build and maintain key relationships in their region in order to access the best available opportunities for our clients.
How much dry powder is too much? To what extent are the larger regional funds skewing the statistics?
The percentage of Asia private equity, with respect to global private equity, is still much lower compared to the relative sizes of the public market or GDP sizes. Furthermore, private equity in the Asian emerging economies has not fully reached the full spectrum of investments opportunities compared to US and Europe. I definitely see more opportunities for investments.
With the advent of pension funds, sovereign wealth funds and even insurers now making direct investments, how has the competition impacted the strategy and decision making by both GPs and LPs.
These investors sometimes compete with the GPs, sometimes co-invest with the GPs, and sometimes provide exits for the GPs. While direct investments are becoming more prevalent for certain LPs, they are generally a small portion of their overall private markets portfolio, and complement the investments being made in GP funds. Ultimately, they are providing a healthy competition to the GPs to stay ahead, and I would say the symbiotic relationship between the GPs and these LPs continues to exist.