Chinese wealth manager Noah Holdings is preparing two private-market global secondaries funds for launch in the next few months, AsianInvestor can reveal.
One will focus on private equity and the other on private real estate assets. Rather than making direct investments in secondaries, the funds will buy limited partners’ shares at a discount to net asset value before the lock-up expires.
“Basically it’s like providing an early exit and liquidity to existing investors, hopefully with a large discount in case the market is volatile,” said William Ma, Noah's chief investment officer based in Hong Kong.*
He noted that since 2008-2009 there had been a liquidity crunch in the secondary market – the discount to limited partnership shares at its peak in 2009 was 37% and is now 8%.
“This type of strategy provides a good opportunity to raise capital now in the event of further market volatility, as some LPs will sell their shares at a discount,” he said. The discount will narrow once the market normalises, as it did in 2009/2010, argued Ma, who joined Noah in November, as first reported by AsianInvestor.
Noah has been conducting due diligence on managers for the PE secondaries fund since last year, in a process that takes three to nine months to complete, he said, declining to name the firms.
When asked about client appetite, Ma said there had been more demand for dollar-denominated liquid products with less than one-year maturity, low volatility and a 4-6% return target. They like fixed income, real estate, venture capital and private equity, he added.
Whereas Western investors would invest in PE and venture capital for asset-allocation purposes, Chinese high-net-worth individuals – typically businessmen in traditional industries – do so as a way of getting into 'new economy' sectors such as IT and technology, said Ma.
PE secondaries is a relatively nascent type of investment in Asia, but interest is rising such assets. It is not yet a crowded market and offers a shorter investment cycle and more predictable prices for assets than traditional PE, said Mike Imam, managing partner of Hong Kong-based Silverhorn Investment Advisors. He pointed to growing opportunities in this area, notably in China, as reported.
Meanwhile, Noah is also doing due diligence on managers for the pan-Asia fund of hedge funds it is developing. The firms include Singapore’s APS Asset Management, Hong Kong-based Zaaba Capital (the new vehicle of Rajan Rajasooria, a former trader at Azentus Capital), London-based Capula Investment Management and US systematic investor Two Sigma.
Noah will allocate to 10-15 managers for the FoHF product, which will have three main strategies: pan-Asia long/short, single-country equity long/short and portfolio hedging, such as volatility trading.
The current negative sentiment on Asia is creating opportunities for hedge funds, such as high-quality companies trading at historically low valuations, noted Ma.
He also pointed to event-driven opportunities, such as privatisation of Chinese companies listed as American depository receipts, suggesting that global allocators were less focused on such names given the prevailing negative sentiment on emerging markets.
Asked about Noah’s geographic focus, Ma said the firm was positive on India and Vietnam, the latter to capture the industrial production cycle over the next 10-15 years and the former for its changing demographics.
“Our clients understand the success and growth of China over the past 20 years, as well as its challenges, such as wage rises,” he said. “That is why some business owners are moving factories to Vietnam.
“Some are worried about the demographic changes in China,” added Ma, “but they look at India and they see China five to 10 years ago.”
*An extended interview with Ma will appear in the April issue of AsianInvestor magazine.