For investors like Swiss fund of funds manager LGT Capital Partners, an asset class like secondaries can do well in a downturn and hold steady in bad times, Doug Coulter, partner and head of private equity for Asia at LGT Capital Partners, said at the HKVCA China Private Equity Summit 2018 on Tuesday.
“We can clearly use our secondaries business when the downturn does come and valuations fall, and nobody wants to buy assets anymore in Asia,” Coulter said. “We can buy good quality assets at cheaper prices and we can be a seller of our own funds on the secondary market, which we do from time to time when pricing is high. And we think pricing is high right now.
“Wine has good vintage years and bad vintage years, so does private equity. We make sure we invest across the cycle every year. These are not going to be the best vintage years, that’s what it feels like,” Coulter noted.
LGT Capital manages $60 billion of assets, all invested in alternatives, of which $30 billion is in private equity. Fifteen percent or $4.5 billion of the investor’s private equity portfolio is invested in Asia-Pacific, with around half of its exposure in China. According to Coulter, the firm has three business lines: 50 percent in primaries, 25 percent in secondaries and 25 percent in co-investments.
LGT has backed funds managed Hong Kong-based secondaries firm NewQuest Capital Partners, according to PEI data.
In addition, Coulter noted that a downturn will happen at some point. “Globally we’re seeing a lot of pro-cyclical, top of market behaviour we see that in the US, Europe and Asia. Capital raising is at an all-time high. And dry powder relative to GDP is probably much worse in the US and Europe than in Asia.”
Private equity, he said, is an idiosyncratic business. “At the end of the day we don’t have to back every manager, it is about trying to find those exceptional managers and companies we can invest in.”
For its co-investments in Asia in the last year, Coulter said that the average EV/EBITDA at entry the firm paid was around 8x, even though the market as a whole was in the low teens.