HQ Capital: Asia at exit ‘inflection point’

A lack of exit opportunities is a thing of the past, according to managing director Tim Brody, whose firm has placed a big bet on Asia with its latest secondaries funds.

One of the main barriers to the growth of Asia’s secondaries market is coming down, according to a managing director of secondaries at HQ Capital.

Private equity firms in the region are getting to “an inflection point”, where they can make regular, profitable exits, Tim Brody tells Secondaries Investor. This is driven primarily by the increasing experience of their personnel, and the growing array of strategic buyers and financial sponsors looking at the region’s mid-market.

“The key concern in getting investors over the hump is around liquidity and the notion that the Asian private equity market has historically struggled to generate meaningful distributions to paid-in capital,” he said… “The portfolio we’ve built so far has already generated meaningful DPI, despite being on average only about a year old.”

The necessary legal and financial infrastructure is also now in place to “create liquidity at the underlying portfolio level at a rate that’s continuing to accelerate”, he added.

HQ Capital has ramped up its exposure to the Asian market. Last month it closed flagship Auda Secondary Fund IV on $503 million and Auda Asia Secondary Fund on $250 million, Secondaries Investor reported.

ASF IV can invest as much as 20 percent of its capital in Asian assets, Brody told Secondaries Investor. Investors in ASF IV and 2015-vintage fund of funds Auda Asia IV were given the option to increase their exposure to Asian secondaries by also investing in AASF. The two funds ended up committing a combined $79 million to AASF, Secondaries Investor reported.

In a February report, Greenhill Cogent said it expected Asian secondaries to account for around 10 percent of all volumes transacted in 2018 as attractive pricing draws sellers into the market.

HQ Group acquired fund of funds manager Auda International in 2015. It merged its real estate and buyout arms with the acquired entity, creating HQ Capital. Auda was founded in 1989 as the US investment arm of the Harald Quandt family foundation, a German industrial investor.

The firm has 140 employees and manages $11.3 billion in total assets from 10 offices in North America, Europe and Asia.