We recently had the opportunity to attend the Asian Venture Capital Journal's Annual AVCJ Private Equity & Venture Forum in Hong Kong. The event was attended by over 4,200 senior investment professionals, advisors and regulators focused on the private markets of Asia and globally.
After a busy couple of days at the conference, here are some of our key takeaways on the current investment funds landscape in Asia.
Prolonged fundraising: It is clear that fundraising periods have increased this year, with fund managers reserving the right to unilaterally extend fundraising periods, a feature that was previously less common. This reflects a shift in LP perspectives and more extensive due diligence and negotiation by investors.
Co-investments: Co-investments, which were historically viewed more as an add-on or afterthought, are now key considerations for many investors, often negotiating concrete co-investment arrangements in advance, and sometimes as a condition to an investor's commitment to a sponsor's blind pool fund. Co-invest arrangements may occur in the context of strategic partnerships entered into between a sponsor and large significant investors. Sponsors are also willing to allocate specific co-investment opportunities to prospective investors even before they come into the fund, with a view to having them grow comfortable with the sponsor by working together on the transaction and due diligence process.
Data-driven future: LPs are asking for more disclosure and reporting than ever. There is a push for sponsors to provide more data and information on investment performance, deal flow and allocation, and transparency on fees and expenses. Fund managers and administrators will need to set up more streamlined and efficient ways to provide specific reporting to investors on a continuous basis.
Bespoke investment partnerships: There has been an increase in separately managed accounts and funds-of-one arrangement between LPs and GPs. We have seen an increased demand for these bespoke arrangements, where both sponsors and investors can benefit from a one-on-one working relationship that can provide creative economics and more efficient deal execution.
Venture capital: Venture capital investors continue to fight upstream in the Asia market, with less activity throughout 2023 particularly in the China market. Certain VCs have shifted focus to South East Asia with the expectation that there are highly opportunistic investments to be made given these markets have historically attracted relatively less VC investments than others.
China opportunities: There is a gradual sense of increased but guarded optimism as it relates to China's private capital markets. In the VC space, some consider that going forward it might be a good time to deploy given that valuations have come down significantly and there are opportunities to acquire reasonably priced quality companies. Others see opportunities in the buyout market, including possible corporate carveouts by MNCs looking to recalibrate their China exposure and also where businesses contemplate about succession planning. A few observers single out health care as a sector they are looking favorably towards.
Secondaries: Traditional fund investors are looking at attractive secondary opportunities in Asia. The secondaries market is certain to become a core strategy in the future for many investors in Asia, especially as some investors seek liquidity and are willing to give alluring discounts for cash today. Recapitalization and continuation vehicles are becoming ever more popular in this economy.
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