News & Analysis

Asian funds trend toward country-specific

As private equity in Asia matures, more country-specific funds are expected to emerge as part of a larger trend of localisation and specialisation.

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Private equity in Asia has been going through a stage of upheaval since the meltdown of 2008, and firms are under increasing market pressure to demonstrate how they differentiate from one another, according to a panel of industry sources speaking at webinar organised by Merrill Database.

Across the region, the easy investments have already been picked up, said Stephen Seelbach, co-head of Morgan Stanley's Asia Pacific Financial Sponsors Group. “There’s a lot less low-hanging fruit.”

Thus, a way for GPs to differentiate now is by developing country-specific funds. Localisation and having a local team has been essential in Asia for a long time. But with most investments remaining minority stakes, specialised funds will be at an advantage when it comes to due diligence, according to Derek Sulger, managing partner of Lunar Capital.

Funds themselves will become more country-focused, but at the same time LPs will invest in several of these funds simultaneously for a more pan-regional focus

“You can’t be dedicated to a market like China without being focused solely on it,” Sulger said. 

Niklas Amundsson, managing director of MVision Asia, told PE Asia that the trend is emerging in two ways. Funds themselves will become more country-focused, but at the same time LPs will invest in several of these funds simultaneously for a more pan-regional focus.

“From an investor’s perspective, [country-specific funds] obviously have more dedication” to the local market, Amundsson said. For example, they can give investors more choice in their investments, and also have a deeper local network.

Country-specific fundraising for China has increased eight-fold to $21.9 billion in 2011 from $2.6 billion in 2009, according to the data division of Private Equity International.

Amundsson said that the shift to country-specific funds is a natural stage in private equity development. Looking back on the development of more mature markets like Europe, funds would begin as country-specific, grow to a regional focus, and then go global. 

At this point, he said, only a few Asian funds like Hony Capital have the capacity to become more pan-regional; others will stay country-specific for some time.