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April 14, 2009

Limited Partner Focus: Asia Alternatives

Founded in early 2006, Asia Alternatives is an Asia-focused Private Equity Fund of funds. Asia Alternatives recently raised a $950 million second fund (as a successor to its $515 million first fund). Venture Intelligence recently spoke to Rebecca Xu, a Co-Founder and Managing Director who co-leads Asia Alternatives’ Hong Kong office, and Praneet Garg, Investment Associate who is responsible for the firm's fund investments and direct co-investments in India. Extracts from the interview, the full version of which is published in the Q1 '09 Venture Intelligence Roundup report.

Q: When do you expect the PE deal making activity to recover?

Rebecca Xu: Investing pace has slowed down in every market in Asia. There are currently a lot of uncertainties in the overall economies and the PE markets, causing our GPs to be extremely cautious in deal making. Public market valuations have come down significantly but private market valuation correction is still lagging in some markets. Our GPs are also spending a lot of time helping their current portfolio companies to deal with this environment. So it is going to take a long time for deal activities to come anywhere close to levels seen in recent years.

Praneet Garg: While deals in pipeline are pretty strong, GPs are taking time to re-assess risks in the current economic environment.

Q: When can one expect to see the fundraising environment recover for GPs?

RX: It’s going to take a long time, possibly up to 24 months, for global LPs to come back to market and actively make new commitments. At the moment, if you look at LPs who are on the ground, still actively looking at Asian funds, these are mostly Asia dedicated fund-of-funds firms or LPs who already had significant positions in Asia. These firms have capital allocated to Asia already and would continue to build relationships and evaluate opportunities in Asia.

Q: Would we see more specialist Buyout funds or will it be Growth funds doing buyouts opportunistically?

RX: Even in the past, we have not seen many GPs focusing only on buyout deals. But there are people who want to do more buyouts or control deals. However, given the limited opportunities in the market, we haven’t really seen much action on this front. Going forward, that may still be the case in that minority growth deals will drive majority of the deals by Indian GPs.