Baring Private Equity Asia has amassed $4 billion for leveraged buyouts across the region at a time when many other firms are struggling to raise capital.
The Hong Kong-headquartered private equity firm said on Wednesday that it is targeting companies in Asia, as well as European and North American companies with growth plans in the region.
The new fund is the second-largest ever dedicated to deals in the region, behind only Kohlberg Kravis Roberts which collected a record $6 billion from investors in 2013.
Baring Asia decided to raise a fund 60% larger than its last in 2011 because it now sees greater opportunities across Asia for larger, leveraged buyouts.
“It’s the right size for the opportunity,” Jean Eric Salata, Baring Asia’s founding partner and chief executive, said in an interview with FinanceAsia.
Baring Asia’s new equity firepower will be amplified by debt. Local banks across the region are increasingly eager to back leveraged buyouts as they hunt for higher-yielding products.
Baring Asia was part of the consortium that took Giant Interactive private in a leveraged buyout last year.
The firm is also trying to seal more cross-border deals, such as its investment in the UK's Cath Kidston or Nord Anglia Education which are both expanding in Asia. "This is a strategy that is a lot less competitive and harder to execute," said Salata. Nord Anglia Education expanded its network in Vietnam earlier this month.
"Of course we have to be careful not to invest in businesses outside of our competency," he added.
The new bumper fund comes at a time when many of the region’s private equity firms are struggling to match previous fund sizes, with many forced to downsize.
The number of new Asia-focused funds dropped to 142 with a total value of $55 billion in 2014 compared with the 283 vehicles that reached a final close in 2011 and raised $65 billion, according to data provider Preqin.
Time to buy
Asia's financial markets have underperformed US markets in recent years, weighing on the relative performance of Asian private equity funds. However, going forward it now looks like an opportune time to put money to work, Salata said.
“The entry point right now looks pretty interesting to a lot of investors because of the underperformance of Asia relative to the US,” he told FinanceAsia.
Higher economic growth rates in Asia combined with the greater incidence of leveraged buyouts -- as opposed to minority, growth capital-style investments -- will boost returns, said Salata.
After several challenging years for private equity in India, for instance, the market has become less crowded as many firms failed to raise new buyout funds. “We continue to be very bullish on India,” said Salata. Baring Asia invested in Indian outsourcing service provider Hexaware Technologies in 2013.
China’s economic slowdown has also discouraged competition. Baring Asia sees an opening in China partnering with state-owned enterprises either domestically or on outbound acquisitions. Baring Asia invested in COFCO Meat last year, a unit of state-owned COFCO Group.
“There’s a big push by government to introduce private sector capital and expertise and that will benefit private equity players generally,” said Salata.
US LPs pile in
In a statement, Baring Asia said that it had closed Baring Asia Private Equity Fund VI, a private equity fund with $3.988 billion in commitments from investors known in the industry as limited partners (LPs).
The dispersion of returns is much wider in Asia than in Europe or the US so LPs have been cautious when putting money to work in the region. This has led to investors concentrating their bets on a handful of managers with proven track records.
“All of our active funds are in the top quartile in terms of performance and that’s why we were able to generate the level of interest that we did,” Salata said.
There are about 105 institutional investors in Fund VI, up about 70% from its previous fund. About half of these investors are US pension funds and roughly a third are Asian sovereign wealth funds, with the balance made up of investors from Europe, the Middle East and South America.
The LPs include the Pennsylvania Public School Employees' Retirement System, which committed $100 million, and San Francisco City & County Employees' Retirement System, which signed up for $50 million.
Baring Asia’s sixth fund reached its first close of $3.3 billion last year, within four months of launching. It closed at its hard cap and was heavily oversubscribed. The firm’s partners are committing $138 million, making them one of the largest investors in Fund VI.
Many US LPs have been cashing in on the positive performance of US private equity funds and are now looking to redeploy capital. Baring Asia originally targeted $3 billion.
“Many investors are looking to reduce the number of relationships they have globally … and to allocate larger amounts of capital per manager and that’s something we have benefited from in this process,” said Salata.