HONG KONG (Reuters Breakingviews) - TPG’s Asian fundraising is a sign of the times for buyout shops. The U.S. private equity firm co-led by Jim Coulter slightly exceeded a $4.5 billion target for its new fund despite poor returns in the region. New leadership in Australia and China provides some reassurance. Still, such success after relative failure is a telltale sign of a frothy market.
A decade marked by departures and middling deals has taken its toll on TPG’s Asian franchise. The firm lost its groove in China after prolific dealmaker Shan Weijian decamped in 2010. Members of the Japan team then left to set up their own outfit in 2014 and the Tokyo office has since closed. Recently, star rainmakers in Australia have left, too.
That has weighed on performance. TPG’s 2007 Asia fund had eked out a paltry net internal rate of return — an annualised return — of 6.6 percent as of March 2018, and a 2013 pool hasn’t fared much better, returning 7.7 percent, according to public disclosures by investors. The median return for similar 2007 and 2013 funds over the same period was 10.2 and 17.7 percent, respectively, according to Preqin. That helps explain why it took TPG over two years to raise its latest pot, compared to the current average of 10 months calculated by Preqin.
TPG’s success was no doubt helped by its ability to point to solid investments in India, Indonesia and Myanmar, as well as revamped teams in Australia, South Korea and China, where it will work with the buyout arm of China International Capital Corp to pursue deals. But the fundraising success also reflects a sheer shortage of well-performing outfits available to fulfil the target allocations of investors switching out of volatile stock markets.
Hong Kong-based rival PAG recently raised $6 billion in six months and its fund was hugely oversubscribed, meaning many investors couldn’t hand as much as desired to an outfit whose last two pools were delivering 20 percent-plus net returns as of March. As stock markets remain volatile, that trend is set to continue, making 2019 a year that can lift all buyout shops.
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