Embracing Asia in a global LP portfolio

Asia Pacific has an important role to play in the portfolios of limited partners (LPs), with the region offering growth and diversification opportunities. A panel of LPs, whom between them have 13-25% of their assets invested in the region, spoke to an engaged audience at SuperReturn Asia.

Asia is a key market for growth as it contains two of the three largest economies globally, as well as two of the fastest growing economies in the world. The region’s size, growth and diversity offer a lot of interesting opportunities, and as a result, one of the panel members had around a quarter of their assets invested there.

Weichou Su, Partner & Head of Asia, StepStone Group, shares his thoughts on why Asia is an unmissable region for any LPs.

Frank Su, Managing Director, Head of Private Equity Asia at CPPIB Asia Inc., speaks to us about the different opportunities LPs could pursue in the region. 

A second panellist said they had increased their exposure to Asia to 13%, as part of what they described as a well-diversified global portfolio. Another panellist said they had started out with an allocation of 12% but this had increased to 15% due to growth. They said this reflected their success investing the region, with Asia currently their best performing portfolio. They added that Asia was the only region in which their investments in private equity had outperformed all other asset classes.

Investment strategies

Despite the panellists agreeing that Asia was an important market, the number of people they had on the ground varied, which impacted their investment approach. One panellist had around 100 investment professionals in the region, 20 of which worked on the private equity side. This high level of staff enabled them to take a very resource-intensive approach to the region, with them setting up an office in Hong Kong and focusing on building a local team. They pointed out that Asia was a very complicated market with a lot of different economies. They added that as they did not have any near-term liabilities, they were able to pursue a long-term growth strategy.

But another panellist had only two people managing the private equity portfolio. As a result, they invested through separate managed accounts with a country specific or sector focus. They added that they were slowly getting into on-balance sheet, which was more pan-regional, while they had also invested in growth, special situations and buy out. Going forward, they were looking to try to access Asia Pacific through a pan-regional strategic platform. Another panellist had only four people on their team, making it difficult for them to have a presence in Asia, and leading to them using consultants to advise them on investments in the region.

In terms of thresholds, some of the panellists were not allowed to invest more than 20% on a specific guideline, while another did not have a hard cap. One had a minimum investment of USD100m, although they could go down to USD50m if it was a compelling opportunity.

Under represented

The panellists all thought Asia was generally under-represented in LP portfolios, often accounting for 10% or less of assets. One panellist said it had taken a lot of effort to convince stakeholders that Asia Pacific was a good place to invest, and it had needed significant support from its advisors to educate the chief investment officer and the board about the opportunities the region offered. Another panellist agreed and said as a result of similar issues, they had had to be very conservative, adding that convincing the board and stakeholders had been a long process.

Transparency issues

The panellists agreed that a recurring issue they faced in Asia was a lack of transparency in the reporting from GPs. They said they would also like to see better governance, the adoption of best practices and a greater alignment of interests. One of the panellists added that greater transparency and better corporate governance was important to them to help them build relationships. Another said they would like to see more company-level information made available, as this was one of the things they liked to analyse.

But they agreed that GPs were beginning to catch up with global reporting standards, with many now having internal resources dedicated to this area. They added that when GPs were showing improvements, they were happy to give them time to build their internal capability. One panellist also pointed out that China was rapidly catching up with other markets regarding transparency, with GPs often asking how they could do a better job.

Building relationships

Building relationships in the region was very important for all of the panellists, with one saying they had a strong network of GP partners. The audience heard that some of the larger funds and country-specific funds were now opening offices in the US to help build investor relations and LP relations. This development was significant, as they said it was difficult for LPs with limited staff to build relationships when they were only able to come to Asia for a week. Another panellist said finding GPs who wanted a long-term partnership was a key criteria in deciding who it worked with.

Overall, the panellists through Asia was an important region from a macro perspective due to the size of the market and the opportunities it offered. One added that from a long-term growth perspective, it was difficult to ignore.