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Leveraging local knowledge for targeted investment

Insight 12 September 2022

Leveraging local knowledge for targeted investment

As published in Private Equity Real Estate.

On-the-ground expertise is essential if investors and fund managers are to appreciate the local nuances that abound within the Asia-Pacific region. That’s why fund administration services are so important, say Catherine Law and Natalie Breen.

Local knowledge is key when it comes to investing. The opportunities that exist across various markets can remain elusive if investors do not have access to on-the-ground expertise. Volatility, unforeseen risks and regulatory hurdles can scupper even the most carefully constructed portfolios.

Sanne, an Apex Group company, is a global provider of a wide range of complementary business solutions where end-to-end services are underpinned by regional expertise. Catherine Law leads one of the company’s regional divisions, working as the Head of Business Development, APAC, while Natalie Breen is Global Head of Strategic Development - Real Assets, Apex Group. They consider recent market developments, investor challenges and increased demand for outsourced fund administration services.

Catherine Law: Global investors in the alternative assets space are generally targeting private equity and real estate. I see a lot of investors searching for growth equity, which is leading to more buyouts. Due to a lot of late-stage venture capital investments suffering notable decreases in valuations, investors are looking at growth targets in particular.

In terms of sectors, there are a lot of investors in the Asia-Pacific region interested in core real estate and private equity/venture capital. Infrastructure is another sector with rising interest, as well as logistics and data centers, and investments in portfolio companies in the semi-conductor, healthcare and biotech and renewables sectors.

We are seeing institutional investors such as pension funds and sovereign wealth funds increasing capital allocation across the region in recent years. For example, it makes a lot of sense to increase allocation for investment in logistics as this is a sector which has been surging since the pandemic began.

On the other hand, raising funding for any projects has been made more difficult recently due to the macro environment, which certainly hasn’t helped these portfolio companies as financing has become more costly. Some of these investments remain appealing to investors due to allocation of capital from public markets into alternative assets, with a view to capture the higher return potential of these longer-term investments.

CL: If you look globally, you see strong performance in Asia ex-Japan, although more broadly North America continues to lead the way in terms of activity. Across 2021 and the first half of 2022, activity has slowed down, but we expect this to pick up in the second half of the year. This is certainly what we are observing in relation to the number of funds being supported by our existing clients – as well as new ones.

As a global firm, we see both inbound and outbound activity increasing in Asia-Pacific. We are witnessing Asian managers investing not just in the region’s developed economies like Japan, South Korea, Australia and New Zealand, but also in emerging economies such as Vietnam and the Philippines. These markets are receiving a lot of interest because they can supply the growth equity investors are looking for.

Within Asia, China and India represent the two biggest markets. However, the geopolitical environment does pose significant investment risks, particularly in China. For funds with exposure to China assets, some managers are diversifying away from domestic investment, either investing in other private equity funds or joint ventures with other GPs with expertise outside of China, as a way of minimizing this risk.

India is another market in which we see a lot of growth, but it is also one that is difficult to navigate unless you are physically present in the country. The tax and legal systems are very different from those with which investors may be familiar.

If managers or investors are looking to tap into the Indian market, they really need to be committed. One of our clients, an Asia-focused alternative investments firm, set up shop in India last year, expanding their investment strategies into

CL: A lot of institutional investors are trying to allocate more investment to the alternatives space. They want to boost their exposure and, for that, they need to rely on third-party managers. They can’t simply hire people in-house to manage their funds. This is driving the emergence of new managers in Asia, all trying to seek the best talent, which isn’t easy to come by. We are also witnessing more consolidation among large established managers combining forces to leverage expertise in different asset classes and local networks.

A lot of emerging markets, like Vietnam and India, provide significant opportunities for growth and as capital markets become more sophisticated, the ecosystem to service those managers and assets will be required.

One of the beneficiaries has been Singapore, which has very robust tax treaties with many countries in Southeast Asia and which has a big talent pool of professionals who can support the growing demand to invest into these countries. I have witnessed Singapore becoming more popular for fund managers and investors in terms of setting up their fund management businesses and using Singapore as a domiciliation for their funds or family offices.

Our fund administration business is also a beneficiary of this growth as a result of increased demand for local expertise to support mid to back-office administration and investor services.

We are witnessing Asian managers investing, not just in the region’s developed economies like Japan, South Korea, Australia and New Zealand, but also in emerging economies such as Vietnam and the Philippines”

Catherine Law
Head of Business Development, APAC.

Covid-19 highlighted the importance of flexibility and real-time data requests, which have become a focus for managers and investors”

Natalie Breen
Global Head of Strategic Development, Real Assets, at Apex Group

Catherine Law: For each jurisdiction, being able to understand the nuances with regards to tax, legal and regulatory matters is the first step, and being able to find the right local support and knowledgeable professional for compliance, accounting, corporate services and general understanding of the cultural differences is crucial. For example, if we didn’t have a Japan office, we couldn’t support our clients who needed the right people to carry out the administrative matters for their corporate structures holding Japanese assets.

Natalie Breen: The alternatives industry has seen a big push toward a professional services model, which means being a trusted adviser to clients in the same vein as large law and accounting firms. Managers in Asia are not just looking for traditional administration and corporate services, they are looking for a long-term partner to provide proactive value-add and complementary services, whether that is in financial reporting, ESG advisory or technology and data solutions, and most importantly understand the cultural nuances specific to the region.

Natalie Breen: There is no doubt the pandemic accelerated and potentially effected long-term structural change in our work practices and how we use digital innovation. Asia, unlike other regions, kickstarted the work from home movement and a lot of initial learnings from our Asia colleagues helped the rest of the world to smoothly transition as we entered a global lockdown.

The overnight implementation of “work from home” across the globe meant employers had to quickly pivot to ensure they had the relevant technology platforms to maintain business operations and sustain their employees new way of working. It also became very clear who invested and tested their BCP plans early as it was immediately felt by clients.

NB: In the funds industry, we experienced an increased demand from Asia fund managers for access to real time data to improve the quality and timeliness of decision-making and to also meet the demands of their investors who are also wanting more regular performance updates.

There is a big move to aggregation of data into data lakes that are responding to fund managers’ desire to centralize their data as much as possible. This allows them to drill down on data and be able to do that from their own secure portal. Historically, the fund administration industry has adopted quite a manual approach to reporting, using Excel spreadsheets to analyze data. Requests for regulatory and ESG reporting, alongside solutions which can securely house and aggregate portfolio and fund data, remain in high demand.

Covid-19 highlighted the importance of flexibility and real-time data requests, which have become a focus for managers and investors. To the extent our industry can help managers source, collate and share data in a secure environment is something they value. ESG commitment has also been accelerated across alternative asset classes because of the pandemic. Investors want fund managers to provide more data around ESG management and reporting, and GPs will look to their fund administrators to deliver bespoke solutions.

Other insights from Catherine Law

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Insight 15 June 2021
Private Debt Comes of Age in Asia
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Insight 25 May 2021
Webcast | Hong Kong tax concessions on carried interest
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Insight 18 May 2021
Hong Kong introduces new onshoring funds reimbursement scheme of HK$1million
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