Vishal Mahadevia is global co-head of financial services and head of Asia private equity at Warburg Pincus. The firm closed its third global financial services fund last week on USD 3bn, beating a target of USD 2.5bn. It is positioned as a companion vehicle that invests alongside Warburg Pincus’ flagship generalist funds in relevant assets. Asia is high on the deployment agenda, with Mahadevia planning to sharpen focus on fintech in the region amid geopolitical and macro uncertainty.

Q: What was it like taking this fund to market?

A: The fund resonated strongly with investors for a few reasons. First, our first two financial services funds [which closed in 2017 and 2021 on USD 2.3bn and USD 2.5bn, respectively] have demonstrated very strong performance across every meaningful measure. Second, we continue to see a very compelling opportunity set globally. And third, we have an experienced team that has worked together for a long time. The product itself is also differentiated. It’s a combination of financial services and technology for financial services companies. Very few investors have real depth across both financial services and technology, and even fewer can do that on a truly global basis. There are people who specialize in payments or financial software, and others focused on insurance or asset management. But a scaled and integrated global strategy that brings all this together is rare.

Q: What was LP feedback on Asia?

A: LPs were very positive about the discussions around growth, and they want Asia embedded within a cohesive global strategy. We started investing in Asia’s financial services sector in India, expanded into China, and then into Southeast Asia. Across the region, we play the under-penetration themes in financial products and services across multiple subsectors. In developing Asia, opportunities tend to be more balance sheet-heavy, in areas like banks and insurance, whereas developed markets skew more asset-light. What LPs truly value is our deep local regulatory and market understanding, combined with the benefits of global learnings.

Q: What are your thoughts in terms of deployment in Asia?

A: If you look at any financial product or service, India remains significantly under-penetrated, followed by Southeast Asia. China is a little more advanced, but still well below developed markets level. Across developing Asia, penetration remains low in mutual funds, general insurance, life insurance, mortgages, banks, and wealth management. There’s a tremendous amount of white space. In terms of focus areas, we like asset management in China, and speciality finance and lenders in India. A consistent theme across the region is technology software, tech infrastructure, and B2B services that support the financial industry, which we also do in developed Asia. The challenge in Asia has always been identifying strong management teams and successfully marrying technology with financial services.

Q: How are you addressing these challenges?

A: Financial services is closely tied to local economies, so understanding the microclimate is really important. Our team has deep expertise in financial service. We know who is good and who can step in to strengthen the business where needed. On the technology side, you have to have a finger on the pulse of what’s happening globally and what are the latest innovation trends. Without that global perspective, it’s very difficult to invest successfully in financial services in Asia. That’s true anywhere, but Asia’s diversity makes it particularly complex. We made a conscious decision early on to build the capacity and bandwidth to marry the deep local understanding with a global tech lens.

Q: What is the scope of the Asia financial sector team?

A: We believe that we have one of the largest dedicated global financial services and technology teams in the industry. Globally, we have over 40 dedicated financial services investment professionals, excluding fintech specialists, and about 15 of those are in Asia. In India alone, we have three partners dedicated to financial services, not including myself. We have two partners focused on financial sector in China, and one in Southeast Asia, supported by a dedicated regional technology team that works across the region. It’s important to us to invest in senior talent and advisors who understand local nuances. Without that, it’s hard to invest successfully and systematically in financial services.

Q: How is the macro environment influencing strategy?

A: You must remain nimble, and that’s why this fund has worked. It’s global and diversified across subsectors. There are times when we don’t want exposure to certain areas like banks in India, for example, when valuations are too high and the risk-rewards profile is not compelling. There are times when fintech in the US is attractive, and times when it isn’t. Today, we see more upside in areas like asset management in China. There are cycles and different parts of the market will get squeezed at different times. In an environment shaped by geopolitical and macro uncertainty, you need a fund with the ability to adapt — one that is diversified across subsectors, technologies, services, and geographies.

Q: What are you cautious about currently?

A: There’s always something to be cautious about, but it’s very sector specific and market specific. In India today, valuation is probably the biggest challenge, although there are still pockets of very attractive opportunity. US valuations now are not for the faint of heart either. At these price levels, the only way to generate private equity returns is to find an angle that can meaningfully change the trajectory of a business. This year marks Warburg Pincus’ 60th anniversary, making us one of the longest standing private equity firms globally, and we’ve been investing in Asia for more than half of that time. So, we’ve seen and successfully navigated through many cycles, and we continue to stick to our knitting.

Q: How will the role of Asia in this strategy change due to the macro environment?

A: From a macro perspective, Asia should become a larger part of the pie. From a micro standpoint, we continue to be selective and disciplined. I’m a strong believer in Asia broadly, and in financial services, the opportunity is even more compelling. Asia already represents a larger share of our financial sector funds than our global flagship funds, driven by under-penetration, fast growth and strong demand for capital. We’ve invested across nearly every financial services subsector in Asia, and we’d like to do more. Going forward, we expect to increase our focus on financial services companies that use technology as a key differentiator in Asian markets.