• Deployment, including co-invest, expected to reach USD 600m, more than last cycle
• India, Southeast Asia, Japan, Korea will be focal points, while China remains difficult
• Portfolio transactions more attractive than direct deals in hypercompetitive India

TR Capital closed its fourth Asia secondaries fund in early 2021 at the hard cap of USD 350m. Most of the capital came in before COVID-19 hit and then, having put fundraising on pause, it reengaged just as the post-pandemic rebound was taking hold. Fund V was offered no such respite, the marketing process coinciding with a downturn in Asia fundraising and challenges in one of the firm’s core markets.

TR fell short of its USD 500m-USD 600m target but still ended up with more than the previous vintage. A final close came at the end of June with commitments of USD 401m and a 92% re-up rate from existing LPs. Co-investors deployed USD 150m alongside Fund IV. Paul Robine, TR’s CEO, expects it to reach USD 200m in the Fund V cycle, with a sizeable portion already locked in as part of a formal programme.

The LP base is split reasonably evenly between Asia, the US and Canada, and Europe and the Middle East. TR made a concerted effort to cultivate investors in Japan, South Korea, and the Middle East, recognising the broader shift in fundraising dynamics.

“We got a lot of questions about China, the geopolitical and exit environments, and the slowdown,” Robine said of the 18-month fundraising process, which featured an early first close of USD 350m. “On the other side, secondary opportunities are growing in Asia and the fund is already one-third deployed.”

As recently as mid-2021, TR was talking up technology investments in China, having added a Shenzhen office to penetrate the local start-up community more easily. About 12 months later, the firm established a presence in Singapore, with interest in Southeast Asia secondaries rising as China became more difficult. Last year, the Asian office count hit six with the opening of a second India base in New Delhi.

TR’s most recent China deal closed two years ago. Robine said the firm is taking a wait-and-see approach to the market, wanting to see how the exit environment evolves. India, Singapore, Vietnam, Indonesia, South Korea and potentially Japan will be the focal points for Fund V. The firm is also interested in opportunities that involve helping Asia-based companies with global expansion.

Single-asset vs multi-asset

Developed Asia hasn’t been so prominent on the agenda, but uncertainty around exits in emerging markets – especially IPOs – means buyouts are more attractive. TR retains its preference for new economy sectors, such as technology, consumer, and healthcare, with Robine observing these are most suited to its 3-5-year exit timeline. The firm’s average holding period over 15 years is 3.9 years.

India is the exception in emerging Asia, with domestic IPOs readily accessible and plenty of late-stage investors willing to back growth rounds that facilitate full or partial exits for TR. The firm, which has been operating in India since 2008, has benefited from these trends, having previously backed Flipkart (M&A), Lenskart (up round), BigBasket (M&A), and Sapphire Foods [NSE:SAPPHIRE] (IPO; it remains a shareholder).

For new investments, however, it is looking elsewhere. Late-stage investors that were previously putting in new equity to fuel start-up growth are now concentrating on taking out positions held by other financial sponsors. Competition and pricing for direct positions in companies have duly rocketed.

“Up until 18 months ago, only players like us were doing secondary direct deals in India. Now traditional growth investors are getting involved, as well as investors that were historically focused on China and want to diversify,” said Robine. “But portfolio deals are more appealing in terms of price because we don’t face competition from those investors.”

In Fund IV, direct stakes and portfolio deals – typically, multi-asset continuation vehicles – each accounted for 50% of the India portfolio. Two of the three Fund V deals to date are India: a portfolio restructuring for Samara Capital and the acquisition of a position in lending platform Fibe from an existing investor. Robine wouldn’t be surprised if, by the end, the portfolio deal share in India was 75%.

For Fund V as a whole, the goal is to maintain a balance between direct and portfolio transactions, with GP-led transactions accounting for the bulk of the latter. Robine anticipates increased deal flow across all market segments as the bid-ask spread – the longstanding obstacle to taking secondary opportunities from conception to closing – finally narrows.

“There are lots of sellers in the market. There is some softness in the macro in several countries, and this is forcing sellers to start to adjust their valuations and expectations,” he said. “In the past 24 months, Asia has shifted from a seller’s market to a buyer’s market. But you need to set the bar high, be selective.”