Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
The new fund is looking for deals in the growth capital area of Asian private equity. It will charge management and performance fees of 2% and 20% respectively and projects internal rates of return of at least 25%. AIGÆs Asia private-equity team of 30 is based around nine offices on the continent. The entire team is now on the hunt for investment prospects, and what this means is that when two offices haul in companies in similar industrial sectors, they can compare metrics across various data points in its capital-allocation process to pick the best one.
This fund will not be leveraged at fund level, but AIG will consider leverage at a company level. The first fund, AOF 1, closed in 1999 with $748 million in commitments, and has achieved an IRR of 34%.
Is now a good time to be assembling another private equity fund? Some observers think we are close to the peak of the private equity cycle, especially as Asian equity prices are a lot higher than when AIGÆs first fund was investing.
ôBoth macro and micro elements in Asia are very compelling, and in may ways can be said to be at their high points,ö says Ada Tse, Asia president at AIG Global Investment Group in Hong Kong. ôYes, stock market prices are also at highs, but we look to source proprietary deals where thereÆs more flexibility on pricing, perhaps ones with an absence of other capital sources or stock market benchmarks. We invested the first fund at single-digit price-earnings ratios.ö
The fund has already committed 15% of capital to investments in China, South Korea and India. These include a stake in ChinaÆs Tiangong International, which is a steel and tools manufacturer. Additionally, the fund has bought into Firepro Systems in India, which is involved in the home-security industry.
ôWhatÆs exciting about Asia is the width of opportunities,ö says Tse. ôWeÆve got a broad economic reach and each one of those economies has its own advantages. WeÆre looking at areas such as, for example, the rise of the consumer, by way of retail and distribution, and in food and beverage. It is this continued strength of Asia as factory to the world and provider of skilled services which allows us to build a diverse portfolio.ö
AIG Global Investment Group manages in excess of $670 billion and employs 1,800 people in its 44 offices.
Regulators keep their eyes open on tightening insurance industry by introducing more detailed risk management requirements, which could bring pressure on smaller players.
China and India are more obvious choices for AustralianSuper to consider in Asia Pacific, but the super fund currently lacks the expertise and prefers to stick to the US and Europe.
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Investors are increasingly turning to private companies and private debt in their hunt for ESG alpha, but the age-old problem of transparency and due diligence remains