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Predictions

Asian private equity fund formation 2008: here is what the experts believe will happen in the coming year.

“Fundraising in 2008 will slow down from 2007 during which a number of major GPs raised new funds. LPs should focus on top quality GPs who have strong edges and patience in competitive market. We might find those GPs among emerging managers but need to be very selective and careful.”

Kazushige Kobayashi, Alternative Investment Capital, Tokyo

“Most of the funds being targeted will be raised, because LP appetite is insatiable, but this is not healthy. Most investors and funds of funds seem to invest in too many funds instead of being selective. Taking that approach to get access to the market will ultimately generate average private equity returns, which will not be good. Better and cheaper to invest in the public markets.” Erol Uzumeri, Teachers' Private Capital, Ontario

“We expect fundraising in Asia to continue to increase as a proportion of all private equity dollars raised, and in absolute terms as well. This expectation is the result of the combination of greater macro-economic growth prospects in the region as expected GDP growth statistics continue to outpace those of the US and developed Europe by margins of 2-1 or thereabouts, and the increasing development of the private capital markets.

The impact of experienced private equity firms from outside the region entering these markets serves to further speed up this market maturation process. In effect, the return prospects continue to compare favourably to non-Asian opportunities in many respects, while many of the risk factors (liquidity, political, capital availability etc.) are lessening.”

Alexander Apponyi, BerchWood Partners, London

“I don't see a material pick-up next year over the $30 to $40 billion raised in 2006 and roughly the same amount you'd expect to get raised this year. So many large funds have already been through the market, and the investment spend in some of the larger markets such as Australia has started to slow. In Japan, the pace has in fact been a little disappointing. So somewhere between $30 to $40 billion again in '08 would not be a surprise – which in itself is not a small number to get to in successive years at all.”

George Raffini, HSBC Private Equity (Asia), Hong Kong

“We believe that the strong fundraising market will continue in 2008 as long as the Hang Seng and A-share markets don't fall off a cliff. Demand is driven by continuing strong value based fundamentals for private equity investment in China, which coupled with a number of high performing funds who are coming back into the market should make for a strong fundraising market. The current flood of new first time funds entering the market will probably recede from the current level of 1-2 new funds per week in light of increasing competition for both transactions and capital.”

Ludvig Nilsson, Jade Alternative Investment Advisors, Shanghai

“Many Asian funds will be able to demonstrate strong track records given the good exit performance across the region. Given that the credit crisis has a greater impact on US and European private equity, we expect LPs to focus more attention on Asian private equity. As such, we expect 2008 to be another good fundraising year. The main caveat to this would be if the credit crisis were to lead to a bear market for stock exchanges in the US and Europe, and slow down distributions from PE firms globally. If this results in some LPs becoming overallocated to the asset class, PE fundraising could be impacted globally.”

Lam Chihtsung, Axiom Asia, Singapore

“Most sophisticated private equity LPs are still keen to put capital to work in Asia, especially when the region is viewed in the context of turmoil in the US and to a lesser extent Europe, following the recent liquidity crunch. Some LPs are expecting lower returns in those markets while Asia has not been affected nearly as much. LBOs in this region will likely be done on similar terms as before. Investors continue to look for demonstrable track record; unique investment strategies that create value; experienced teams; availability of co-investments; and fair terms.”

David Tung, The Carlyle Group, Singapore

“If private equity fund formation in North America and Europe slows down as a result of the problems in the debt markets, a massive uptick in Asian fundraising is not the next logical step. Investing large funds in markets like China and Australia has proven tricky, and there is already a question over whether Asia can soak up the capital that has been raised already.”

Kelly Deponte, Probitas Partners, San Francisco

“The momentum in Asia is still incredibly strong, and there is an increasing number of groups knocking on our door now, both in the main markets of China and India, but also in South East Asia. Risk in these markets is perceived to have come down considerably from where people saw it years ago. We too see massive potential in Asia where private equity is still underweight. But we're also conscious that mistakes will inevitably be made: manager selection is therefore even more important than it was.”

Richard Laing, CDC Group, London