HQ Capital is bullish on Australia’s burgeoning secondaries market following the appointment of a new head of Asia.

Michael Hu, a former managing director at Ardian, has been hired to lead HQ’s investment and business development activities in Asia-Pacific from a newly launched Singapore office, he told affiliate title Private Equity International. Hu’s departure from Ardian was first reported by Secondaries Investor in December.

Hu joined Ardian in 2018. Prior to that, he was a principal at Greenhill in Hong Kong, where he led origination and execution of secondaries market transactions within Asia-Pacific. At Greenhill, he worked on deals including the sale of $1.7 billion worth of stakes by Singapore’s GIC, $900 million of stakes by Australian super Commonwealth Superannuation Corporation and a $500 million portfolio by fund of funds Asia Alternatives.

He replaces Jacob Chiu, a former Hong Kong-based managing director and nine-year veteran of HQ, who retired in December.

Germany-headquartered HQ invests in Asia-Pacific via its global primaries, secondaries and co-investment funds, as well as through dedicated regional buckets. The firm has deployed about $2 billion in the region since 2007 and has exposure to 70 APAC fund managers, Hu said.

“We’d like to do more with our GPs in Asia than just have a primary relationship,” he noted. “We’d like to do secondaries with them. We want to co-invest with them.”

Hu singled out Australia as “particularly attractive” for secondaries opportunities in the near term, both for LP-led portfolio sales and, increasingly, GP-led transactions.

“Historically, LP-led dealflow had been very strong out of Australia because of the superannuation system and the way it works with the focus on fees, so a lot of the superfunds are very open to selling older portfolios in order to redeploy capital,” he said. “They’re pretty big books – we’ve seen a couple of transactions upwards of $1 billion. What’s changed in Australia, I would say in the last three or four years… is the emergence of the GP-led market.”

In November, Secondaries Investor reported that Ardian and Roc Partners were co-leading a single-asset process on an Australian healthcare recruitment business owned by Sydney-based Crescent Capital Partners. The same year, industry stalwart Pacific Equity Partners exited the final asset of its 2015-vintage Fund V via the transfer of New Zealand education group UP Education to a continuation fund, per a statement. Quadrant Private Equity also reportedly completed a A$255 million ($166.4 million, €154.5 million) single-asset process in November 2022.

“Now we’re seeing mid-market GPs also actively thinking about their portfolios and considering GP-led transactions, so we think that will be a very interesting source of dealflow in the next 12 months,” Hu said. “We’ve had some initial discussions.”

HQ will use secondaries processes to evaluate potential GP relationships on the primary side. “I personally think from a secondaries background you can really test the skill and the ability of a GP when you value one of the existing portfolios, and it’s one of the ways we like to build relationships,” Hu added.

“We’re looking at a mid-market manager in Australia now that we’re considering a primary relationship [with], but what we’re doing first is looking at a secondary on one of their mature existing funds that’s still got a couple of assets left in it. We’re going to test them and see how honest their valuations are, how’s the growth been in the companies and where we think they’ll ultimately exit – then we can use that to… decide whether they’re going to be a top-quartile firm or not.”

Keeping it in the family

Hu’s mandate is also to expand HQ’s private wealth relationships in Asia-Pacific. “We’re seeing the emergence of Singapore as a wealth hub for investors globally – not just Southeast Asia,” he said of the firm’s decision to set up shop there.

“We’re [also] seeing offshore capital coming to Singapore… from developed markets. We think it’s a really interesting area of growth and we want to work with some of the emerging wealth managers there in the region particularly. You’re looking at this evolution of single-family offices, multifamily offices, distribution groups, the [external asset manager] market. So, a lot of players popping up, and we’re interested in capturing that opportunity.”

HQ has pedigree in this space. In its early days, the firm predominantly raised capital from wealthy individuals and families in Europe. Today, the firm’s LP base comprises 95 percent institutional capital.

“When you’re like a $1 billion kind of investor and you want to build a PE programme with somewhere between $50 million-$100 million in capital in the next one or two [or] three years, you want a higher level of service,” Hu said. “And we think that’s a really interesting space given that we’ve evolved from a family office background. We’ve built global programmes in the mid-market, [whereas] a lot of the private banks focus on larger funds today, just given their size and what they can access.”

HQ isn’t alone in eyeing Asia-Pacific private wealth. Blackstone, for instance, believes Japan’s burgeoning wealth channel could be second only in size to the US. How much of this Asian wealth is directed back into their home markets, however, remains to be seen.

“Individuals will vary, I think, but overall we’re also seeing pretty healthy demand from ultra-high-net-worths and family offices in Europe for Asia-based products,” Hu said.

“They think it’s an interesting market entry given that some of the larger US institutions may be pulling back a little. Asian investors, particularly private wealth investors, I would say probably have less of an immediate demand for Asia… but we’re seeing a lot of them have a greater demand to diversify into, say, US mid-market private equity or European mid-market private equity.”