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Hans Markvoort, head of private equity investment solutions, LGT Capital Partners

Comment: Private equity opportunities in Asia

Hans Markvoort, head of private equity investment solutions, LGT Capital Partners and lead manager of Castle Private Equity (Castle PE), highlights the growing range of private equity opportunities in Asia.

The Asian private equity landscape is a widely diverging geography with numerous opportunities. In our view, China continues to be the key market, in particular for growth capital investments in private companies and small sized buyouts of state owned enterprises undergoing privatisation.
India is another area of interest, although the competitive intensity of this market and higher valuations must be taken into account. We are also following a handful of managers in selected frontier markets such as Indonesia with a view to allocating to these in the future.
We view Asia as a long-term allocation for Castle PE. Our current allocation target of 20% reflects our perceptions of Asia’s overall economic environment as well as the private equity opportunity set.
The success of two of our largest underlying companies, Newbridge Asia III’s exposure to Shenzen Development Bank/Ping An and Softbank’s exposure to NVC, a lighting company, are currently driving our Asian exposure. Their realisation may reduce the exposure to some extent in the short- to medium-term.
The fact that Asia was much quicker to rebound from the global economic crisis of 2008/2009 helped Asian-focused funds weather the downturn, as has the much lower use of debt to finance transactions. Expansion capital and small buyout transactions are an important part of the Asian market. Debt is generally a less important factor in such transactions and that is particularly the case in China and India where the concept of the leveraged buyout does not really exist.
Emerging Asia, in particular China and India, has also seen robust exit markets over the past seven years, with hundreds of private equity backed companies going public in Hong Kong, Shanghai, Mumbai and exchanges in the U.S. and Europe.
In summary:
·      Over the past 24 months Castle PE’s geographical exposure to Asia has increased to 13.8%;
·      Castle PE’s current allocation target of 20% reflects Asia’s attractive economic environment;
·      Small and mid-market local managers in emerging Asia are where the best opportunities lie;
·      China is a key market and interesting opportunities exist in India.

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