“This will be a breakthrough year for Asia.” These words have adorned the covers of business magazines for years in relation to every industry you can name. Sometimes the prediction proved right, most of the time not.
Back in December, as part of a series of articles looking forward to the year ahead, Secondaries Investor struck a cautious tone. Dealmaking in Asia would remain lumpy, we said, accounting for $3 billion-$5 billion of global secondaries volumes – around 10 percent of the global total and more or less in line with the recent average. There would be more GP-led processes but, due to a lack of suitable candidates, not many more.
Now in the eighth month of the year, it looks as if Secondaries Investor may have been too conservative in its outlook. In July, Government of Singapore Investment Corporation offloaded around $1.7 billion of private equity stakes to Goldman Sachs Asset Management, while Australian superannuation fund Commonwealth Superannuation Corporation sold $900 million-worth.
Asia is the theatre for a number of large, brand-name GP-led deals. Last month, Secondaries Investor revealed that TPG was mulling GP-led processes on its 2008-vintage TPG Asia Partners V and the 2013-vintage Asia Partners VI – funds that raised a combined $7.4 billion. Days later it emerged L Catterton was looking for a way to give the assets more time in its 2009-vintage, $637 million L Capital Asia fund.
Are these deals indicative of a breakthrough in the Asian secondaries market or just another couple of “lumps”?
Tim Brody, a managing director with secondaries firm HQ Capital, thinks the former. What has held back the growth of Asian secondaries – the ability of firms to generate exits – is becoming a thing of the past as the number of strategic buyers in the region grows and stock markets become more accessible, he told us in June.
“The portfolio we’ve built so far has already generated meaningful DPI, despite being on average only about a year old,” he said, speaking of the recently closed $250 million Auda Asia Secondary Fund.
The alterative view would be that the market has not turned a structural corner; instead, a timely confluence of forces – the huge amounts of dry powder pushing buyers down the risk curve, a coming together of pricing expectations between buyers and sellers, and the success of the Warburg Pincus strip sale last year – have prompted a clutch of big deals. Has there been a meaningful structural change? “No,” says one secondaries-focused Hong Kong-based lawyer definitively.
Mostly likely the truth is a combination of these two views; a maturing market complemented by favourable conditions. Either way, it looks promising.
What do you think is behind Asia’s big first half? Let the author know at email@example.com