In this episode of China Money Podcast, founder and CEO of Palico, Antoine Dréan, shares what he sees the fundraising environment will be for China-focused private equity funds this year, and why secondary transactions of Chinese private equity fund stakes among Limited Partners (LPs) will likely double in 2013.
Listen to the full interview in the audio podcast, or read an interview excerpt below.
Q: First, give us a brief introduction of Palico and Triago, two companies you founded and currently hold positions in?
A: I started Triago over twenty years ago. The objective back then was to help private equity fund managers in Europe to raise money from limited partners (LPs) in the U.S. Triago, (as a placement agent), has grown to be one of the market leaders in both fundraising and secondary transfers (meaning we help LPs sell their stakes in private equity funds to other LPs). I am still chairman of Triago, but am no longer involved in the daily operations.
I am now very involved in the daily operations of Palico, which is an online "dating service" for private equity GPs (general partners), LPs and service providers such as placement agents or lawyers. We will soon reach 1,000 members from 60 different countries with many blue-chip LPs and GPs.
Q: What has Palico achieved in attracting China-focused private equity GPs and LPs?
A: Actually, fund managers and investors based in China account for about 14% of our membership base. That is a much higher percentage point compared to their weighting in total fund number and asset-under-management globally. We estimate China represents about 6% of the US$3 trillion asset-under-management out there globally.
Q: In 2012, the volume of China-focused private equity fundraising has dropped by 50%, mostly due to the decline of RMB fundraising, but USD fundraising also suffered. How have LPs changed their mindset about allocating to Chinese private equity funds?
A: According to Palico's own database, fundraising (both RMB and USD fundraising) in China has dropped about one third last year from 2011's all-time high. So the severity of the decline depends on which source you look at. Though a one-third drop is still high, at about US$11 billion in total funds raised, 2012 still represents the third best year ever for China fundraising, following 2011 and 2008.
Considering growing interests among our LP members and what will be available for global fundraising as private equity "dry powder" (see explanation below) expires, we expect at least the same amount (of last year's fundraising total) will be raised for China funds this year.
We estimate there is US$100 billion of "dry powder" in Chinese funds, meaning money that GPs haven't invested and that they can still draw down from their investors. This is one eighth of the global private equity "dry powder" of US$800 billion. We feel China should take a greater share of global fundraising in coming years as the Chinese economy recovers. Those well structured USD and RMB denominated China funds with good track records will continue to raise funds with ease in 2013.
Q: What do you think will happen to that US$100 billion "dry powder" in China this year?
A: You have two groups of GPs out there. Those with good deal flow and discipline, they will be able to put money at work in good terms. Those with poor deal flow and less discipline, they will probably either use the money in the wrong way, or they will have to leave the market at some point.
In this episode of China Money Podcast, founder and CEO of Palico, Antoine Dréan, shares what he sees the fundraising environment will be for China-focused private equity funds this year, and why secondary transactions of Chinese private equity fund stakes among Limited Partners (LPs) will likely double in 2013.
Listen to the full interview in the audio podcast, or read an interview excerpt below.
Q: First, give us a brief introduction of Palico and Triago, two companies you founded and currently hold positions in?
A: I started Triago over twenty years ago. The objective back then was to help private equity fund managers in Europe to raise money from limited partners (LPs) in the U.S. Triago, (as a placement agent), has grown to be one of the market leaders in both fundraising and secondary transfers (meaning we help LPs sell their stakes in private equity funds to other LPs). I am still chairman of Triago, but am no longer involved in the daily operations.
I am now very involved in the daily operations of Palico, which is an online "dating service" for private equity GPs (general partners), LPs and service providers such as placement agents or lawyers. We will soon reach 1,000 members from 60 different countries with many blue-chip LPs and GPs.
Q: What has Palico achieved in attracting China-focused private equity GPs and LPs?
A: Actually, fund managers and investors based in China account for about 14% of our membership base. That is a much higher percentage point compared to their weighting in total fund number and asset-under-management globally. We estimate China represents about 6% of the US$3 trillion asset-under-management out there globally.
Q: In 2012, the volume of China-focused private equity fundraising has dropped by 50%, mostly due to the decline of RMB fundraising, but USD fundraising also suffered. How have LPs changed their mindset about allocating to Chinese private equity funds?
A: According to Palico's own database, fundraising (both RMB and USD fundraising) in China has dropped about one third last year from 2011's all-time high. So the severity of the decline depends on which source you look at. Though a one-third drop is still high, at about US$11 billion in total funds raised, 2012 still represents the third best year ever for China fundraising, following 2011 and 2008.
Considering growing interests among our LP members and what will be available for global fundraising as private equity "dry powder" (see explanation below) expires, we expect at least the same amount (of last year's fundraising total) will be raised for China funds this year.
We estimate there is US$100 billion of "dry powder" in Chinese funds, meaning money that GPs haven't invested and that they can still draw down from their investors. This is one eighth of the global private equity "dry powder" of US$800 billion. We feel China should take a greater share of global fundraising in coming years as the Chinese economy recovers. Those well structured USD and RMB denominated China funds with good track records will continue to raise funds with ease in 2013.
Q: What do you think will happen to that US$100 billion "dry powder" in China this year?
A: You have two groups of GPs out there. Those with good deal flow and discipline, they will be able to put money at work in good terms. Those with poor deal flow and less discipline, they will probably either use the money in the wrong way, or they will have to leave the market at some point.