Recession brings opportunities in private equity
Updated: 2009-03-07 07:44
By Kwong Man-ki(HK Edition)
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HONG KONG: Cash is King. He who has the cash will win. These words have been reverbrating around financial sectors since early last year.
Asset disposal is one of the easiest ways for companies to boost their capital or seek working funds amid the financial crisis. The secondary market for private-equity assets may not be fresh idea for global institutions, but it is a timely platform for companies seeking to sell the funds at a fair value, particularly when they are short on liquidity.
Paul Capital Partners, a US-based private equity that engaged in the secondary market for more than 15 years, set up its base in Hong Kong in 2007 to tap into Asian markets.
Lucian Wu, Paul Capital's managing director for Asia, said the financial crisis did provide more business opportunities for the private equity secondary market. "It's true that companies need to liquidate the funds when they are short on liquidity," he told China Daily in an interview.
Banks, insurance companies and family offices in Asia are the major sellers, said Jason Sambanju, a director at Paul Capital.
Wu noted that banks also sell their funds when they need to boost their capital condition in order to meet the BASEL II standards on capital requirements.
It may not be a surprise that there are plenty of sellers queuing up to find buyers amid the credit crunch. But are there enough buyers?
"We have a strong customer base in the US," Sambanju said.
The US-based company, founded in 1991, manages $6.6 billion in capital for its three investment platforms: private equity secondaries; healthcare royalty and revenue interests; and venture capital fund of funds.
The strong data base is a backup for Paul Capital to facilitate transactions and open up the emerging markets like China and India, where the company sees good potential.
Sambanju noted that the Asian-focused private equity funds amounted to about $20 billion, among which just 1 percent goes to the secondary market. But in the global market, the private equity market size reaches $120 billion, of which 3 to 5 percent goes to the secondary market.
On the mainland, Wu said, the private equity market has yet to mature, as it started in 2004. "It usually takes about seven to 10 years for a fund to mature enough and be put on sale in the secondary market," he said, adding that the mainland market is still too young."
But the growth can be substantial in the coming years, he said.
Banks and insurance companies on the mainland are the potential sellers, similar to other Asian markets, Sambanju said.
Wu added that the private equity market is still young and a less transparent market, making it difficult to expand on the mainland. However, he said, the company's Hong Kong base is an advantage to enter the mainland market, being able to get in touch with Asia fund managers familiar with the Chinese market.
(HK Edition 03/07/2009 page2)