Let’s be honest: private debt (in terms of distressed and special situations) was born in the USA. Sure, it is a global phenomenon now, given a massive boost by the banks’ massed retreat in disarray during the crisis, but the business really grew up from the US thanks to the junk bond revolution and subsequent blowout in the 1980s and the savings and loan crisis of the early 1990s.
This is when behemoths like Apollo, Lone Star, Oaktree, Cerberus, Avenue, MSREF, Goldman Funds, Colony and Angelo Gordon came into being.
The Asian Crisis gave a fillip to these firms and created others such as Fortress and a handful of long-lasting Asian players such as ADM, Clearwater and Pacific Harbor.
Since the 2008 crisis, the European market has been characterised by a few hardy US pioneers who have been around since the early 2000s, an explosion of large and small US new entrants and also a veritable flowering of domestic Europe-based funds, some of which have grown rapidly.
Yet Asia, poor old Asia, seems to specialise in domestic managers only. True, some of the bolder US hedge fund players went into the region in the 2000s. But the vast majority of these left, willingly or not, after 2008, tails firmly tucked between their legs.
We have seen more new local entrants into the Asian market since 2008 and some have done well in raising capital. But we do not see the entry of the big global players, not yet, not really. ‘Global’ seems to mean ‘the US and Europe’ in their book.
Sure we have Fortress and, to some extent, Cerberus in Japan. Farallon is represented by Noonday in the region. Centerbridge and Oaktree invested in the seminal Aussie Billabong deal last year despite having no locally-based distressed investing personnel. But really Asia seems a region of little interest to the really big guys. There are no local hubs or teams apart from maybe a couple of individuals sitting in Singapore or Hong Kong.
Why is this? There are several excuses people use.
The favourite is the relative scale of opportunities. The rationale goes the US market is deep and sophisticated for private debt players. Agreed. In addition Europe is sitting on a giant mountain of distressed opportunities and there be gold in that there mountain. Sure.
But what if every deal is so competitive that you end up paying through the nose and are perennially saddled with winner’s curse as a result? You have to look at the balance of supply of capital versus potential opportunities. I would argue it is seriously out of kilter in a lot of Europe.
The second one is the legal system. The argument goes that the West has nice, functioning, rational legal systems where creditors’ rights can be enforced, whereas Asia is beset with cronyism and corruption and court judgments that go to the highest bidder.
This is a wonderfully naïve view of the benefits in one region and the dangers in another. It all depends on the opportunity and what you are trying to do. Going contentious and hostile in most jurisdictions apart from the US and the UK is not a very good idea typically. Learning to work with various stakeholders makes for better returns and a better life – though poorer lawyers, a sacrifice we will all just have to live with.
The third excuse is that Asia is just too large and diverse – how can anyone focus on so many different countries? This helpfully ignores Europe is far from uniform or easy to negotiate culturally, or that North America is a huge landmass which makes travelling around a costly hassle.
Lastly, people argue you cannot find the local talent in Asia to build a team. Absolute nonsense. I would take many of the Asian debt investment professionals I have had the pleasure of dealing with over folks from other regions any day.
But just remember, if you insist on paying lower salaries simply because it is Asia, you get what you deserve.
So shall I give you what I think is the real reason the big global players are not in Asia yet? Because its much easier as a US-based senior professional to convince your family to move to London than Singapore or Hong Kong, let alone Beijing or Mumbai. Until that changes, ‘global’ will continue to mean ‘the US and Europe’.