Q&A: Head of PE at Asian SFO

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You have listed many of them.

More than 95% of our capital deployed are direct investments. We rarely invest in funds, let alone FoFs, so I can't help you here.

Haha this thread is intended for FO discussion, but I will give it a shot.

Yes, there are foreigners at PE firms of varying sizes and strategies across Asia, from associate to partner levels (same with VCs). I think just like any front office job in finance, you need to have a unique spin to your individual story, and you need to network hard. Cultural differences also vary depending on the firm. Eg. a China buyout fund will 100% only hire local Chinese. Country-specific funds will largely only hire people from that country. But, a BPEA would bring on foreigners (I mean their founder is a foreigner) and they do lots of cross-border deals. Some of the best investors in Asian countries for PE/VC are not necessarily from that country. Look no further than Jeffrey Perlman at Warburg Pincus. He runs SE Asia and all Asia Real Estate. He co-founded ESR, which I believe is one of the largest (if not the largest) real estate asset managers in Asia. Dude is from the US. There are so many examples of this. The large MF PEs with Asian offices will also have foreigners. 

There is definitely a shot, but it's certainly tougher if you don't have Asia experience. Put aside transaction experience, I think you need to convince people that you are passionate about Asia as a region...you are open-minded to learn the cultural nuances, and you understand that business is done differently in Asia. Even within Asia, the cultural differences among countries are vast (eg. Japan and India could not be more different in many ways, but China and Vietnam may share more similarities than you would imagine). If you are interested in moving to Asia, you better have your answer to the "Why Asia" question ready.

To be honest, I would say very difficult base on what i see. Firstly, you dont speak the language (be it chinese or japanese or korean or etc). Many locals even with 2 year IB stint in NYC/london find it very hard to relocate back internally. Having said so, jumping into buyside in Asia with no Asian experience whatsoever or convincing reasons etc you are doomed to fail. And also because firms here not only want you to have local deal experience, they also want you to have the network for better deal sourcings etc. I can tell you the US top notch PE funds or growth equity funds are mostly Asians at the working level (Analyst - VP/directors) maybe just the top guys are foreigners. In singapore this might be a bit different but still with a lot of locals like malaysian, indonesians or thai.

No, we are not a Chinese firm. Think more SG/HK.

I look at BB IBD and MF PE candidates, but haven't hired one. Our shop is quite "sweaty" and we have below average pay, which makes hiring a true "value-seeking" exercise. As a joke, I like to think I am the Warren Buffet of hiring. Probably would make a decent HH/recruiter, if finance fails for me. Top SFOs will pay market price equivalent to BB IBD or MF PE, but you will be expected to work just as hard (don't think you can take days or weeks to turnaround analysis or go through materials or draft memos). This is for private investing though (both credit and equity). I am sure public side guys have it better. They will expect you to crunch. So, if you think you get paid top bucket, but your life will be super chill, please stop dreaming. I'd say on average BB IBD and MF PE guys will need to expect some sort of pay cut to join a good SFO. I don't know what the discount is, but maybe ~15-20%? Ours is much larger than that. I survive and have netted more though, because our firm encourages team members to coinvest directly in deals that we underwrite/do, even if it's a very small cheque, unless the deal dynamics and timing make it hard to include employee coinvestment. I happen to have hit a massive homerun on one of my coinvests, and it's already partially realized, so if you consider my returns on my coinvestment into my comp, I am many times above market pay. I don't even want to share the MOIC on the deal, because it's ludicrous. But, at the same time, my cash comp is so low for my level and responsibilities that I also won't be sharing haha.

I generally like candidates from less prestigious places. I think they are more hungry, and will less likely be on their high horse. They are typically more grateful for the opportunity. I think it takes 12-18 months to train someone new to understand how our team works together, how we evaluate businesses and deals, and get them to a point where they can run shit on their own. People from less presitgious places (boutiques/other FOs/Big4 M&A or TAS, etc.) will value the opportunity more, and they don't think they are hot shit. They are also likely going to be more loyal, and stay for longer, and don't try to hop on the next hot job opening and ditch after a year. Just a reminder, the top paying buyside jobs now are often in crypto. They will outpay BBs/MF PEs and SFOs. I don't want to teach someone how to invest or do deals, and then have them leave when they are starting to finally get a hang of it. It's tiring to hire, and you don't want to have to do it all the time. I personally feel that flight risk is higher with the top candidates. Some may also have attitude problems. But then to be fair, I think from the employer's perspective, besides comp, you have a better chance of retaining team members if they are continuously progressing, learning and challenged. I think that's something that the shop that I am with offers.

We do multiple interviews. A case study is handed out typically at the 2nd or 3rd step of the hiring process. This immediately filters out >50% of the candidates, as they don't meet deadlines or complete the case study at all. And then, depending on work, we invite them back and continue with the hiring process. And no, we have passed on many candidates that had the best models. Some "elite" candidates from MFs and top BBs do produce great models. But, they slice and dice operating data, and still miss out on the key takeaways because they are unable to simply take a step back, and look at the big picture. They get lost in the numbers, and then miss the point, when they have done the work and the answer is right there screaming for their attention. But, certainly, I do think some of the candidates at more "prestigous" places do have materially better work products, whether it's their model, memo or presentation skills. Those things are just "nice to have's" though. Passion, hunger for learning and attitude will always be number one for me. I will get by without the "nice to have's". I certainly hope that they will make my job easier, but I won't be relying on them on decision making, and neither will my boss.

My passion is growth equity investing in Asia. My dream would be to run my own firm, ideally with one or two people from my current team, and maybe one or two new partners to slowly scale AUM. But obviously, it's a pipedream - since starting a 1st-time close-ended fund is incredibly tough, even if you have the track record. I would also consider joining a growth equity fund/team, but would not sacrifice or compromise on decision making or power, relative to where I am now. I also wouldn't transition to a large PE, but into a more junior role (think VP/SVP) just to clip a larger pay check. I enjoy where I am at for now, and do have great satisfaction in the work I do. I am still learning, and continue to be challenged. I think the only scenario where I would leave is if randomly, the firm I am at decides to significantly reduce deployment in PE/VC, or if I (and/or the rest of my team) am asked to switch to another asset class. I like PE/VC, so want to continue to develop here. Less passionate about other asset classes. Private credit is big in Asia SFOs though. Great career opportunity for someone who doesn't mind it. You will always have a job, if you are somewhat decent at private credit, don't mind the execution and have deal experience.

Early thirties. Not sharing numerical figures, but see above response to get a sense.

Just like the rest of the world - tech was very expensive in Asia through the end of 2021, from early stage to late stage. Competition for assets differ depending on sector, and I don't think blanket statements will do your question justice. I think in the large cap buyout space. It has certainly been competitive. There were lots of depressed valuations in the public markets that presented opportunities for private deals, which made for interesting investments.

1. Li & Fung was privatized from the HK stock exchange for $923m. They flipped the logistics arm in 2021 for $3.6b (still pending approval I think).

2. CVC privatized Razer for $1.4b (at $3.2b val). Clearly they think there's a lot of value there. I don't know enough to comment on the angle.

China PE is screwed, and no one is touching that. China-heavy PE funds have really terrible looking books right now. China PE/VCs are also aggressively trying to sell secondaries. India was the star of 2021, both from investment and exit standpoints, but also seeing slowdown in 2022. Mid to late stage venture will be challenging in Asia in the short term from a capital raising perspective, but that means good for buyers. People generally are more cautious right now. SE Asian tech exits will likely continue to be challenging. We don't do Japan, so don't know much about that, except knowing that Japan SaaS privates was a great trade, because of how they are priced in public markets. There was a huge arbitrage. It has definitely slowed down this year.

1. I don't know what our full AUM is. I think only the principal knows. Based on what I know from our book and the private credit book, can confidently say it's >$1b.

2. I think it depends on what kind of deal. If you want to lead venture or growth equity rounds, then you need to compete directly with GPs. If you just want to participate as a non-lead, then it's much easier, but even then, you need to be in the flow like GPs. I don't know how to explain it to you, but it's very network-driven. You are as good as your relationships, and your rep is only as good as your track record. The more decent deals you do, the better deals you get into (there is a feedback loop). My team takes an approach where we identify a space we like, and we go speak to every company in that space (both traditional businesses and start-ups). We then evaluate the entire space, and formulate a view and rank in order the best team/company, and the second team/company. When they raise, we pre-empt and already have a deep understanding of the space. Once in a while, when we get rejected by what is in our view the #1 player due to oversubscription or competitive dynamics, we let them know that the market they are operating in is not a winner takes all, and  if they rejected us, we will go fund the #2 player. Of course, we only do this when we have conviction on the space, and only when the space is truly not a winner takes all. We compete directly with PE/VCs, and have successfully outbid both PE/VCs in the past to lead (of course, we have lost too). This is unusual for a SFO to do though, but as mentioned above the principal at my firm is a financier and did not generate wealth from traditional operating businessese that most FOs come from. Most SFOs are more opportunistic and broker/banker-dependent (ie. passive). It's an easier life, but you also don't get into the best deals. A deal that needs a banker/broker to market is probably not a Tier 1 deal. On the buyout (or activist investing in public markets, which we do) side, a lot of our deals are driven by the principal himself. We behave more like a GP than a traditional SFO. But, short answer is that sourcing anywhere in the world is network and relationship-driven.

3. This is correct, not just income generating only, but structured financing. Must have collateral/asset-backed. Not unsecured. Capital preservation is very key. Our private credit investments in the past typically do deals that range from 15-24% in interest rate, highly structured special sits deals (ranging from bridge financing, acquisition financing, distressed, turnaround situations, etc.). Also, working alongside directly with many private credit GPs. FOs from real estate busineses will do lots of property-related structured financing, because it's in their wheelhouse. And, no one understands the value of the underlying collateral better than they do (be it flat, retail, house, office building, land bank, etc.). The speed that SFOs can move is also one of the reasons why they can be competitive with GPs and banks. Some have longer processes, and can be more bureaucratic. 

4. First time fund manager doing what strategy and what region? Also, what is GP commit % to total AUM (or absolute dollar amount)? Do you have an anchor already? Can't comment without knowing your strategy. If you share more, I can try to be helpful.

SFO = single family office

MFO = multi family office

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We don't focus on secondaries (ie. I don't find a company I like and then call up each shareholder on the cap table to try source a block). But, we are not against it. We just want good shit. 

Secondaries float around in the market like it's public equities. The number of random brokers that sell blocks of secondaries in the market is astonishing. Especially this year, where everyone and their mother is trying to cash out. Animoca is a great example. Does a couple large primary rounds, end of last year. Now, secondaries flying around left and right. A shit ton of US names (50-60 top late-stage tech names) as well (yes, brokers distributing to Asia hoping dumb nouveau rich money will bite at hot names because they stupid and lazy and won't dig a little deeper). And then, "MFOs" and new investment firms trying to syndicate that shit charging 2/20. Some even have the audacity to charge a 2% upfront fee and 2% redemption fee (and that's probably because they are investing in another 2/20 SPV, so they make no money, hence the extra 2% upfront and 2% upon exit). Nah bro, really? If I could anonymously screen share, and show you examples of the kind of emails I get, you would be shocked. You'd think I worked on the trading floor or ECM desk of an IB/HF. All these brokers just press the "forward" button, and every time you ask them anything, they don't know and need to find out. But ask you to agree to a x% fee if you buy or sell a block. Ew...not my cup of tea.

My team sticks to our style and approach to investing when it comes to venture and growth (actually across other teams/strategies too). High velocity in deal flow, low velocity in deployment. But every name/deal we back, we are f-ing proud of it and will own the trade. Not shooting from the hip. No FOMO bs. Don't ask me about crypto.

1. SG and HK will both remain very exciting, but I do think the momentum is shifting to SG. HK was king for 20-30 years, but due to COVID lockdown as well as China's influence, certainly it's losing some allure. Every private banker from any bank will tell you that people from HK are transferring lots of their capital to SG. SG has a lot of money right now, and I do think more talent is going there. HK was the IPO hub for decades, but now, it's absolutely dead. It would not be nice to be an ECM banker right now in HK, I'd be scared. If you like SE Asia and India, SG is definitely a better place to be. There are more firms that focus on those markets. I may be wrong, but HK has a lot more HFs. So, if you want HF, you should go HK. PE-wise, many MFs are based in HK, but often they have SG locations too. Smaller PEs in HK will be more China and North Asia-focused. FO-wise, tons in both cities.

2. What do you want to achieve? I do think the BB brand gives an elevated stamp of approval than the MMs, but also depends if you are doing deals. But even within those  names that you mentioned, I think that there is variance between them, in terms of how they are perceived. Not all MMs are viewed equally. I would only go to a BB if it's the right group. You can be in a shit group in a BB and hate the experience. And, definitely make sure that when you are interviewing, remember that you are also interviewing them. Do you respect the people on the team, and can you imagine working 12-18 hours with them? If you the MD is a tweeb, and doesn't impress you, then do you want to be working for him? Don't join a team where the MD/D interviews you with the attitude of you begging for them, and them not treating you with proper courtesy and respect, some senior bankers are miserable like that. Whether you should go to a BB depends on what you want to do. If you are charismatic and a good networker, you could switch to the buyside with some hustle and luck (assuming you have enough transaction experience under your belt).

I think you should go to an institutional platform that does both funds and co-invests, and try to build your direct investment experience that way. Assuming direct investing is what you are aiming for, get a few co-invests under your belt, network hard and try to move to a PE/VC/FO after. Your fund investing experience doesn't really translate to the sourcing and transaction execution skills that a direct investment team would look for. It doesn't mean you are not capable. They just would rather take someone, who already has transaction execution experience, so there is less to teach. 

You touched on a very painful reality that comes with working at a FO. If the second (or third/fourth) gen works in the family office, it could be very frustrating. Obviously, if this person is driven, hungry and capable, you will respect him/her. But, if this person has no competency and yet has the family's approval to make random and dumb investments, it can be very painful and frustrating. Especially, if you (and your team) have recently had somewhat decent investments turned down by the family/principal. If this person doesn't actually work like a normal disciplined person, and only makes decision, you and your team might have to do the grunt execution for his/her investment too. But on the other hand, if the second (or third/fourth) gen is a hardworking and competent person, it might even inspire you that someone who comes from so much money still has the desire to work hard, and the ability to make good decisions. It really can swing both way. Either quite good or quite bad.

I don't think it's necessary to have worked in finance. Working in finance also doesn't warrant good investment acumen. If a person had good common and business sense, he can still make good decisions. But, of course, if your current new boss doesn't have good common and business sense, then maybe you should consider getting out and not waste your time, since you already mentioned limited opportunities to grow in your comment.

No, because my team only does PE/VC. I have colleagues that cover real estate specifically, and some of our private credit deals are collateralized by real estate, or have a real estate component. Not me though. I personally have zero interest in real estate.

But, I do know that no one is touching China real estate for a long time. The overhang is going to be here for a while. No turning around anytime soon. The whole sector will undergo massive restructuring. With all the value sucked out of the sector, appetite for China real estate (direct REPE/credit/distressed, etc.) is quite low, from what I can gather.

Someone has already asked bout co-invest/FoF in SG/HK. Unfortunately, I have zero insight or color. Not even enough for me to make one generic comment about it. Happy to help with other things, especially if you have questions regarding PE/VC.

I have seen people successfully transition from private credit to PE/VC, even at the VP level. I think it really comes down to your ability to assess a company's business both qualitatively and quantitatively. The skills you learn in Private Credit/Special Sits is quite different from how a PE/VC would look at an asset. The structuring involved in the two streams are very different. It doesn't mean it can't be done. Get into private credit if you like it, but don't do it because you think it will help you get into PE/VC.

Would also add SH in the mix. Thanks.

SG is attracting a lot of wealthy businessmen/families to set up family offices there. It's certainly the hub for SE Asia. Stringent COVID restrictions in HK also led to many professionals moving to SG for more freedom, especially expats. The other major factor is the fact that some fear China's increasing control over HK may threaten certain things (like safety of their money for example). I don't think HK is anywhere near that level of risk yet. The influx of money is making living standards in SG skyrocket, especially property.

Business/finance-wise, I think HK is making a comeback since COVID restrictions were dropped. I don't know if HK will ever reach its previous standing as Asia's undisputed #1 in finance, but it's not like it will tank. It's going to remain a very important financial center in the foreseeable future. It will also continue to serve as a gateway for Chinese enterprises to access off-shore capital.

On other matters, SG is probably better for raising a family (just my guess not speaking from experience), but if you are a young working professional, HK is more fun, exciting and dynamic. Both are very safe cities in general. Both are great cities. The major downside to SG, in my opinion, is that it's literally summer all-year round. Crazy summer heat and humidity for 12 months. Both places are very livable for anybody. 

There will always be competition between the two cities to make their respective cities more attractive for capital to go to (establishing fund-friendly regimes and family office tax concessions, etc.). SG was definitely eating HK's lunch during COVID, but now that things are back to normal, I don't know if that continues to be the case.

Can't go wrong with either city in my opinion.

I like TR Capital. Ran by French founders. They have offices in HK, China, India and Singapore. They do secondary directs and also LP stakes. Won a few PEI awards for Asia (I think they have won in "secondary deal" and "secondary firm" categories before). Previously, they were largely China & India, with a minor chunk from rest of Asia. I don't know what their most up-to-date approach/strategy looks like though. I know they have good returns on net basis. It's a hugely underpenetrated part of the private market in Asia. There are a few GPs that focus on secondaries, but I don't know them all equally well, so cannot comment. TR is legit though.

It's probably the least competitive PE/VC strategy out there in my opinion, as many younger funds are so desperate for distributions to show DPI (so they can raise). I'd imagine that these funds can take their time to study and evaluate good targets (since they are not competing against others on a tight timeline to win a deal), and when they identify a name they really like, they can start calling the shareholders on the captable one-by-one. Bid at steep discounts, and if a shareholder thinks it's too steep, they can pound sand. You just go down the captable. I'd imagine this is what their approach may look like. I'm also just theorizing. Maybe, there are lots of high conviction GPs that would never sell at steep discounts. I'm just rambling at this point.