CASE STUDY

Emerging Markets Private Equity

South African Public Pension Fund | 2020

Engagement at a glance

Client Country/Type: South African Public Pension Fund
Year: 2020
Asset Class: Private Equity
Mandate Size: USD100m–USD200 million
Mandate Geography: Asia Pacific
Return/risk objectives: Pooled Fund or Separate Managed Account
Mandate Type: Pooled Fund
bfinance Services: Manager Selection

Emerging Markets Private Equity

The client, a South African pension fund, was looking to invest up to USD200 million in private equity with exposure to Emerging Markets and was particularly interested in focusing on opportunities in the Asia Pacific (APAC) region. The client’s main objective was to shorten the J-curve by investing in secondaries or making co-investments alongside direct funds and had targeted an internal rate of return (IRR) of 15% net.

Client-specific concerns

Initially the client sought bfinance’s help in identifying managers with broad and competitive expertise in emerging markets. Drawn to the diversity of the APAC region’s investment universe—and its relative economic resilience during the Covid-19 crisis—the client decided to gather more information about those managers with deep experience in Asia Pacific’s private equity markets.

The client was extremely focused on performance, which was a challenge in comparison to developed market private equity: only a handful of managers had strong (and sufficiently long) track records representative of their fund offerings. Although several promising new managers made it through to the final stages of the search process, most of them were still developing their strategies and were and deemed too early-stage for this particular client.

This client was also closely focused on environmental, social and governance issues (ESG) and paid particular attention to diversity and inclusion amongst the private equity managers.

 

Outcome

  • Engaging a broad spectrum of prospective managers and strategies: bfinance reached out to a large group of diverse managers in emerging markets to explore the potential for bespoke solutions for the client, whether that entailed an existing commingled fund or a bespoke separate managed account (SMA).

  • Conducting in-depth analysis of diverse proposals: Given the client’s evolving geographic focus, some of the managers under consideration had shorter track records, so the team conducted in-depth quantitative and qualitative analysis of their performance.

  • Understanding the impact of operating in evolving markets: The implementation challenges of investing in Asia Pacific private equity required careful assessment; bfinance assisted the client in parsing both investment and broader market risks.

  • Delivering a tailored solution: The client was able to select a combination of differentiated strategies: one direct commingled program and one bespoke program that blended a specifically targeted set of hard-to-access fast deployment primary funds with co-investments.

Our specialist says

  • Significant complexity remains in implementation as the region develops more creative, multi-faceted products. This particular search was open to all flavours of private equity, whether direct strategies, tailored SMA proposals or pure co-investment fund opportunities. We sought to provide the client with as many options as possible, and—instead of a single manager—the client ended up creating a bespoke solution that used a combination of these solutions to achieve their desired exposure. Although this client didn’t ultimately end up including a co-investment strategy as part of its overall portfolio, these offerings are gaining strength in Asia and are at a clear inflection point. We expect that—as track records mature and assets under management grow—we will see these offerings take on a larger role in the Asia Pacific investment landscape going forward.

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