A re-balancing act

The findings of a recent survey appear to strengthen the case for portfolio diversification

The debate about the benefits or otherwise of investing in Asian private equity can take place on at least two different levels. One of these debates considers Asia in isolation and asks whether investment within the region makes sense per se. The more relevant debate for many is the role that Asia should play in a global investment strategy that seeks geographic diversification.

One of the many interesting findings in a recent survey by Swiss advisory firm SCM Strategic Capital Management (“State of the Asia Pacific Private Equity Markets”) is the role that Asia played in countering the extreme volatility of the global private equity market last year. While investment activity plummeted in developed markets in 2008, Asian buyout volume rose 19 percent. Between 2002 and 2007, Asian private equity each year accounted for between 4 and 6 percent of total global private equity activity – but, last year, Asia's proportion of the total leapt to 14 percent (see chart below).

Thus, an Asia allocation might theoretically ease the extreme re-balancing of portfolios that takes place when a generally liquid market becomes a generally illiquid market. The survey's authors say that their finding “illustrates the benefit of diversification from an investor's perspective. Faced with a global slowdown of investment activity an allocation to Asian private equity did help to steady the deployment of capital”.

The survey goes on to acknowledge there is no guarantee that Asian investment activity will not register a dramatic fall in 2009, which would undermine the case. However, it thinks this unlikely: “The fact that Asian private equity transactions are traditionally less dependent on debt financing suggests that the impact of the credit crisis on regional private equity activity will probably be much less than in the US or Europe.”

Infrastructure investment specialist Global Infrastructure Partners has left a TPG-led consortium, which intends to bid for Asciano Group, Australia's largest private port and freight railroad operator, according to the Australian Financial Review. GIP may reportedly launch an independent bid for Asciano, which is aiming to announce a deal by the end of June.

Kuwait Finance House Labuan, a fully-owned subsidiary of Kuwait Finance House (Malaysia), has entered into a joint venture with Cyprus Stock Exchange-listed SFS Group, a non-banking financial group with a primary focus on shipping and property, to launch a private equity fund focused on the shipping sector. The firms are targeting $150 million for the Sharia-compliant fund. The two firms will have equal ownership of the Cayman Islands-based fund management company, according to a joint statement

Anheuser-Busch InBev has agreed to sell South Korea's Oriental Brewery to Kohlberg Kravis Roberts for $1.8 billion. InBev will have the right, but not an obligation, to reacquire the brewery within five years after the transaction is closed on pre-determined financial terms, according to a joint statement. The deal is expected to be completed by the third quarter of 2009, subject to customary approvals under South Korean law as well as other customary closing conditions.

Chinese venture firm Softbank China Venture Capital has raised $315 million for its SBCVC III fund, according to a Securities and Exchange Commission filing. SBCVC III's limited partners include Dubai-based investment firm Starling, venture capital fund of funds manager Montagu Newhall Associates and listed fund of funds Princess Private Equity Holding. US pension fund California Public Employees' Retirement System has committed approximately $10 million to the fund.

China Investment Corporation, the $200 billion sovereign wealth fund, has set up a new private equity department headed by Hu Bing, who was previously responsible for CIC's fixed income investment and trading activities, according to Reuters. Hu joined CIC from China Securities Regulatory Commission having previous ly worked at Lehman Brothers in New York. Zhou and Hu report to the executive committee, headed by Lou Jiwei and Gao Xiqing, respectively CIC's chairman and president, it was reported.

Hong Kong-based Guoyuan Asset Management intends to raise a $300 million private equity fund, according to media reports. Guoyuan Asset Management declined to comment. The sectoragnostic fund will invest in Chinese companies, which are aiming to list in two or three years. The fund will raise capital primarily from mainland investors and is targeting a return of 25 percent, reports say.