This week in Singapore, four seasoned, Asia-facing GPs compared notes over a two-hour roundtable session organized by PERE. The result of which was a stream of observations and concerns as well as a picture of which countries and sectors offer best value, and which might be better avoided. (The full report will appear in the November issue of PERE magazine).
Here are five themes that emerged from the discussion:
1. Cautious optimism is the predominant sentiment. Asia still is unquestionably regarded as the world’s growth engine despite the credit crunch. A decent level of buy-sell activity should return by mid-2010. For now, while we are certainly off the market bottom, concerns remain over the volatility of the equities market and its impact on real estate and more signs of health are needed from the general employment markets across the continent.
2. Asia GP skill-sets must evolve. To successfully navigate though current adverse market conditions, the ability to manage risk is a premium skill, something one of the participants noted was lost during the more opulent times. GP platform stability is essential, a fiduciary approach in the GP-LP relationship and the ability to improve communication with such investors is key. This does not necessarily mean more calls and visits. The delivery of the right content in the communication most be prioritised.
3. The rise of local capital. The emergence of cheaper, local capital is a threat to those who source their money internationally. This is particularly evident on the commercial level in China, although Vietnamese residential is another example of a market dominated by local buyers. One GP recalled a recent sale in China where five of the six bidding parties where Chinese.
4. Clubs will lose their allure. LPs desperate to assume more decision making powers thereby diluting the discretionary control of the managers they spend with should be careful they don’t’ create a rod for their own backs. Perhaps now, when sellers have fewer bidders to choose from, such clubs may compete. But one GP predicted clubs and consortiums, while popular today, might suffer within two years.
5. Room for narrow and broad mandates. 2009 has seen much talk of country and sector specific fund launches for Asia while pan-Asian efforts have suffered criticism for their diversity where once they were praised. For some investors, like those seeking to dip their toe into Asia for the first time, the pan-Asia model still stands up. For others looking for tight investment parameters, sector and country specific vehicles prevail.