NewQuest launches fund with portfolio of BoA Merrill investments

NewQuest Capital, a $400 million fund backed by four investment firms and staffed by former BoA Merrill employees, buys a portfolio of 20 BoA Merrill private equity positions.
Darren Massara, NewQuest
Darren Massara, NewQuest

Bank of America Merrill Lynch has sold a portfolio of 20 non-real estate private equity interests to NewQuest Capital Partners, a newly established private equity fund staffed by former BoA Merrill employees.

NewQuest has raised $400 million of capital from four investment firms: Paul Capital, HarbourVest Partners, LGT Capital Partners and Axiom Asia. NewQuest will deploy this money in secondary investment opportunities in Asia. The BoA Merrill portfolio is the first investment made by NewQuest. Both NewQuest and BoA Merrill did not reveal the price at which the portfolio has changed hands. Further, Darren Massara, managing partner of NewQuest, also declined to comment on whether it used leverage to fund the acquisition.

The portfolio comprises 20 growth-equity and buyout interests, primarily in China and India. BoA Merrill did not disclose the price it sold the portfolio for, but the press release mentioned that Newquest has “capital reserved to make new and follow-on investments with an emphasis on the purchase of direct secondary equity positions in Asia”.

“Right now we are comfortably capitalised,” Massara told FinanceAsia in an exclusive interview yesterday. Massara brings to NewQuest 13 years of experience in private equity with a focus on Asia-Pacific. He was previously a managing director at BoA Merrill and led the private equity group, which was based in Hong Kong. Not all the investments were made under Massara’s watch, as he inherited some of the older-vintage deals, but he is very familiar with the entire portfolio NewQuest has bought.

Joining Massara at NewQuest are his former BoA Merrill colleagues: Amit Gupta, Bonnie Lo and Min Lin at the level of partner; Ryutaro Aida as Japan investment director; and Vijay Jacob as senior associate. Gupta heads the India business for NewQuest and oversees investments in the power and financial services industries. He is also the chief operating officer.

Lo and Lin co-head the Greater China business. Lo will oversee investments in the consumer and healthcare sectors and Lin in retail, clean energy and industrials. Gupta, Lo and Lin bring to NewQuest experience gained in similar roles at BoA Merrill.

Newquest plans to grow to 12 people within six months, said a source close to the situation. The firm is currently Hong Kong-based, with Aida stationed in Japan, but it could establish hubs elsewhere as deal flow demands, the source added.

“We have a very strong team that has worked through several private equity cycles and really understands how to drive value and find liquidity,” said Massara. “Over the past few years, we have managed about 75 secondary positions and were able to achieve exits in about half of those situations — nearly all above fair market value.”

NewQuest’s four investors bring to the table a strong track record of investing. Paul Capital manages $4.6 billion in its secondary private equity programme and has completed more than 175 secondary-market acquisitions. In an interview with FinanceAsia recently, Paul Capital said it is one of the first active secondaries players in Asia.

“NewQuest Capital Partner’s investment strategy is a perfect complement to Paul Capital’s efforts in Asia,” said Jason Sambanju in an interview yesterday. Sambanju is a managing director at the fund and was promoted to co-head of Asia earlier this year. “To the extent that we come across opportunities to acquire portfolios of private equity assets that do not have a management team already in place — transactions which up to now have been a bit tricky for us to pursue because we invest strictly as a limited partner — the relationship with NewQuest presents us with the option to pursue these types of deals more vigorously,” Sambanju added.

HarbourVest Partners invests in venture capital, buyout, mezzanine debt and distressed debt through primary partnerships, secondary purchases and direct investments. LGT Capital Partners is a fund-of-funds manager focused on alternative assets for institutional investors. Axiom Asia is a Singapore-based private equity fund-of-funds manager focusing on primary fund investments in buyout, venture capital and growth capital opportunities in Asia-Pacific. The advisory board of NewQuest will comprise one nominee from each of the four investors.

The fund will not target any specific industries, but it expects its investments to include sectors such as telecommunications, media and technology, and power, consumer, industrials and financial services. The fund has a slight preference for emerging Asia, however it will also be evaluating opportunities in Korea, Japan, Taiwan, Singapore and the Pacific.

“Our strategy is to acquire direct secondary equity positions from private equity investors seeking liquidity solutions for their investments — either as a one-off transaction or on a portfolio basis,” explained Massara, citing numbers to back up his conviction. NewQuest estimates there is about $150 billion of private equity deal volume in Asia right now that has not been exited.

Of this, if even 20%, representing about $30 billion, or 1,000 positions, is held by investors who want to monetise immediately, NewQuest has a readymade target deal set. “We will focus on this largely untapped part of the market as we believe our team has a unique skill-set to execute such a strategy for Asia,” added Massara.

As for BoA Merrill, the deal falls squarely within its stated intent to wind down its private equity book. “We continue to simplify the franchise,” said BoA Merrill chief executive officer Brian Moynihan on the bank’s first-quarter earnings call on April 15, in a transcript posted on the Seeking Alpha blog. “We continue to reduce our private equity positions across the board, and we continue to sell some other small pieces to continue to fine-tune this franchise.”

A source said the NewQuest deal was an attractive offer for BoA Merrill to sell a small portfolio of non-strategic private equity investments. BoA Merrill had no comment on the deal.

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