Asia private equity fundraising bounces back

HONG KONG/NEW YORK Fri Mar 5, 2010 11:49am EST

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HONG KONG/NEW YORK (Reuters) - After a dismal 2009, private equity fundraising appears to be showing signs of life In Asia, as investors bet on the region's growth despite a lack of deal flow.

Robert Morse, Citigroup's (C.N) former top investment banker in Asia, set out to raise money last year, with plans to launch a private equity/financial services firm.

Primus Financial Holdings raised $1 billion from a single wealthy Asian family by its April launch and $200 million later from a different investor, he told the Reuters Private Equity and Hedge Funds Summit this week.

Carlyle Group CYL.UL is raising a $3 billion Asia buyout fund, nearly double its previous one, while Affinity Equity Partners is out raising another Asia fund expected to top the $2.8 billion it raised before.

Private equity fund-raising flows are returning to Asia as finding and completing deals remains much harder than in the U.S. and Europe, because of local competition, foreign investment restrictions, and unpredictable governments.

And yet the money is still flowing to buyout shops with Asia funds, to the point where institutional investors are getting crowded out.

"The market has changed (in Asia) and the population of good private equity funds is very concentrated, so there's an access problem for US/European foreign LPs," said Jeremie Le Febvre, partner at Triago, which helps private equity firms raise money for funds and sells private equity assets for investors.

"All the very good funds are oversubscribed again so your options are limited if you want to invest in Asia," he said at the Summit on Monday. Le Febvre runs Triago's origination and execution functions for Europe and Asia.

Private equity deal volume in Asia has been very low in the last few years. While funds recognize that Asia's volatility make it tough to get deals done, the region also invites huge exit opportunities.

From 2005 to 2008, private equity fundraising in Asia went from $2.1 billion to $12.2 billion. By late last year, only $2.6 billion was raised for the region, though there are signs that activity is picking up again.

Fundraising is recovering in the U.S. too, according to the head of law firm Kirkland & Ellis' Private Funds Group, although he told the Summit that the money is coming in slowly.

One area where raising money seems to moving quickly is putting up a fund for China deals in the local currency.

The Blackstone Group (BX.N) and the Carlyle Group are both in the process of raising yuan-based funds to invest in China. That club may someday include Bain Capital.

"The short answer is, of course we're considering it; most of our peers have either done it or announced their intentions to do it," said Bain Capital Managing Director Mark Nunnelly, referring to a yuan-based fund. He said such a fund would provide an opportunity for potentially having advantage-investing in industries where "speed of accomplishing an investment is important."

Another boost to the Asia fundraising scene is the region's home-based investment groups.

Pension funds and endowments have scaled back their investments in private equity, forcing firms to look abroad for new commitments.

That allows Asian sovereign wealth funds such as China's CIC to fill in for U.S. pension funds and other investors.

Private equity firm BC Partners BCPRT.UL will target wealthy sovereign funds when its next 6 billion euro ($8 billion) fund hits the road in the second half of the year, the firm's managing partner said.

BC Partners hopes that middle eastern, far eastern and possibly Australian investors will support the fund, the first to be raised among Europe's large private equity firms since the collapse of Lehman Brothers.

"We have spoken to Asian sovereign wealth funds. We currently have very few non-European and non-North American limited partners," Charlie Bott told the Summit, using the industry term for investors.

(Editing by Erica Billingham)

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