Over the past three years global asset allocators have had to contend with a global pandemic, the decoupling of supply chains, the US-China trade war, and rising inflation and interest rates.
Asia continues to attract attention for its long-term economic and growth prospects, even though market turbulence affected investment valuations.
“Of our total AUM we are roughly 22% in Asia. That portfolio is down rather dramatically from the market sell off,” said Eric Mason, managing director for global private equity of the $18.4 billion New York-based Church Pension Fund, at the Hong Kong Venture Capital and Private Equity Association’s (HKVCA) forum on January 13.
The fund has a long history of investing outside of the US in both public and private markets.
The maximum uncertainty of today’s investment landscape has meant that “more anxieties and questions have been popping up in different ways,” but nevertheless, “communication is always paramount,” said Mason.
In his opening keynote address earlier in the day, Mason said he was hopeful that the private equity markets had finally turned a corner and he expects Asia to lead the global recovery out of the “winter of despair.”
According to Mason, private equity investment will not only help address political isolation but will also be a “catalyst for good things”, such as innovation and developments related to healthcare and climate change.
Indonesia Investment Authority, the country's sovereign wealth fund, also expressed optimism on the outlook for the region recently.
As investors look for sources of diversifying cash flows within a global private markets portfolio, the APAC region has its distinct economical and asset price cycles that are not highly correlated with other regions, experts told AsianInvestor previously.
Still, due to the economic turmoil and dislocations, limited partners (LPs) seeking opportunities within Asia’s private markets have been reassessing their relationships with the general partners (GPs) who manage their investments in the region, according to Mason.
“It shouldn’t take a crisis to over communicate,” Mason said.
Church Pension Fund opened a representative office in Hong Kong in 2009, in recognition of the need to have a local presence in the region where it invests.
Catherine Shih, partner at the $8 billion multi-family office Quilvest Hong Kong— which has currently allocated around 25% of its global private equity portfolio to Asia—said that after having experienced a “meaningful cycle” with many GPs, she finds the relationships between them have been highly differentiated.
“GPs who have institutional processes, transparency, portfolio management and value addition capabilities, these GPs are really rising to the top,” she said.
Shih said that while some GPs have done very well in a booming market, she is not convinced they may be as well equipped to deal with a difficult one.
“You see that coming through in terms of these GPs closeness to the portfolio companies, and in terms of how they're able to articulate what's going on where they see the underperformance,” said Shih. “I would say that it's given me certainly a renewed appreciation for those GPs who are willing to have those tough conversations.”
Raju Ruparelia, senior managing director of direct investing and private capital at the Ontario Teachers’ Pension Plan, reiterated Shih’s sentiment.
“We are looking for that transparency and acknowledgment that we’re in this together. You don’t want to have that call where you get a negative surprise. Transparency has really been the challenge over the last three years,” said Ruparelia.
The $182 billion Ontario Teachers’ has allocated 8% of their portfolio to Asia and is 100% focused on growth, said Ruparelia.