A year ago, secondaries firms in Asia were pretty gloomy about dealflow in the region. Despite the perfect storm apparently on the horizon in countries like China and India, frothy pricing and performance issues were preventing deals from being done.
However, this frustration doesn’t seem to have deterred secondaries firms from looking to strengthen their teams in Asia: a steady flow of professionals have appeared in the region over the last 12 months.
In September last year, Cogent Partners moved Dominik Woessner from London to the firm’s Asia office in Shanghai, in order to bolster its secondaries team. In November, Michael Camacho joined AlpInvest Partners’ Hong Kong office to lead its secondaries efforts in the region.
Most recently, Jason Sambanju, previously a casualty of the demise of global secondaries firm Paul Capital (which in March said it would wind down its operations after a planned sale to Hamilton Lane collapsed), resurfaced as head of Asia secondaries at Deutsche Asset and Wealth Management – a newly created position at the firm.
Like others, DeAWM is strengthening its hand in the region in the belief that opportunities are abundant.
Why? Frankly, secondaries firms are bullish about the opportunity precisely because Asia’s private equity markets have not delivered the returns limited partners had expected.
“A lot of money went in the ground in Asia and not a lot of money came back – so I think this is a good time to go and provide liquidity solutions as a secondaries [investor],” Carlo Pirzio-Biroli, head of private equity at DeAWM, explained.
As a result, LPs have been looking to exit their positions in private equity funds – particularly in China and India – forcing GPs to restructure their already expiring vehicles.
Generally, industry sources believe, it is LPs that are driving the fund restructuring opportunities coming out of these markets – either because of a shift in strategy, the length of time they’ve been invested in a fund, or dissatisfaction with the returns they’ve seen.
“It will depend on where the investments are in their life-cycle, and it will depend in large part on the existing relationship between the GP and LP,” Sambanju said.
But some take a harder stance on Asia’s performance – both at a micro and macro level.
Steve Costabile, managing director and global head of private funds at PineBridge Investments, suggested what we’re seeing is “a combination of disappointment in the GP and disappointment in the macro”. India and China’s current macroeconomic environments have caused investors to reassess their exposure to the region, he argues.
“At some point after you’ve been invested for 10 to 12 years, even if there is near-term liquidity that could happen in two or three years, it is ultimately not going to change your IRR at this point. So [LPs] say to themselves: ‘If I can get liquidity now at a somewhat reasonable price, I am better off re-allocating that now’.”
A version of this story originally appeared in the September issue of Private Equity International.