Asia's private equity (PE) industry is sitting on a cash pile, estimated at $50 billion, but a shortage of experienced fund managers is a big worry for the sector.
A snap poll of about 250 PE experts at Super Return Asia 2010 conference showed that about 44 percent considered too much cash as the biggest risk to the industry, followed by absence of experienced fund managers.
Asia is set to deliver strong returns for PE funds, with more than half the respondents expecting China to deliver the highest returns over the next three years. About half of the $50 billion investable capital available in Asia targeted for China.
“The number of funds have proliferated dramatically in the last 5 to 10 years,” Nicholas Bloy, managing partner of Navis Capital told Reuters.
The key to successful PE dealmaking in China is the ability to tap staff who have the right local knowledge and network.
“It's a huge, complex, un-intermediated market, where the constraint on deals is the number of people who can build some relationships that you could hire and train,” said Stephen Peel, managing partner at TPG Capital.
Hot sectors for deal making in Asia, include retail, automobile, energy, agricultural related sectors and financial services.
Despite the rush of capital into China, fund managers said PE deal valuations in the country were not getting out of hand.
“We are not seeing price competition being our biggest worry in China. Competition is around quality of relationship, what you can bring to the table apart from just money,” Peel added. But things are different in India, the other big Asia PE market, where deal valuations are getting stretched.
“All the deals that are happening today (in India) are actually happenning at 20-30 percent premium to the public markets. And people are taking implementation risks,” said Gulpreet Kohli, managing director of ChrysCapital.
Source: Reuters