The Colorado Public Employees' Retirement Association, the San Diego County Employees' Retirement Association and the pension fund of IBM Corp. are among institutions participating in the growing number of Asian private equity vehicles.
The commitments come amid a spurt of vehicles being offered for investing in Asia. According to the Hong Kong-based Asian Venture Capital Journal, this year through April, 14 Asian private equity funds had closings with total commitments around $1.5 billion, while another 44 funds are seeking about $9.3 billion of capital.
"Even if half of those get funded, the dollar amount raised would be more than all of last year," estimated Dan Schwartz, editor and publisher.
Experts say this year's fund-raising pace exceeds last year's, when fewer large funds were being marketed. But the number of funds and commitments have been piling up. According to the AVCJ, worldwide funding for Asian venture capital/private equity jumped to $6.7 billion in 1995 from $5.3 billion in 1994 and $2.3 billion in 1993. (1996 figures are not yet available.)
This year, the $20 billion Colorado fund, Denver, committed $100 million to the HSBC Private Equity Fund 2 Ltd., from HSBC Private Equity Management Ltd., Hong Kong. The move was Colorado's eighth commitment to a non-U.S. private equity fund, said Donald Schaefer, communications director. Colorado also committed $30 million to the Asia Pacific Growth Fund II, managed by H&Q Asia Pacific Inc., which closed in January.
The $3 billion San Diego County fund committed $10 million to the Concord Asian Infrastructure Fund, managed by CEF Holdings, Singapore. The $35 billion IBM pension fund, Stamford, Conn., committed $30 million to the Transpac Capital 1996 Fund, managed by Transpac Capital Pte., Singapore.
These funds are not alone. In January, the Asia Pacific Growth Fund II closed with $278 million of commitments -ahead of its target of $250 million.
Besides the Colorado fund, other investors in Asia Pacific Growth Fund II include the San Francisco City & County Employees' Retirement System, the pension funds of Eli Lilly & Co. and Goodyear Tire & Rubber Co., the Common Fund, Howard Hughes Medical Institute and Caisse de Depot et Placement du Quebec, according to the publication Private Equity Analyst.
The $110 billion California Public Employees' Retirement System, Sacramento, made a splash last year when it committed a whopping $225 million to direct investments in Asia in conjunction with the Asian Development Bank. In a statement, fund officials called the move "an international first - both for a U.S. public pension fund to team up with a multilateral bank, and for an international multilateral bank to team up with a U.S. pension fund." Investments are expected to finance a variety of ventures, including industrial and financial services in the region.
In January, California state Treasurer Matt Fong and representatives of seven public pension funds - all but one from California - traveled to several Asian cities.
Before Richard Rose, chief investment officer of the San Diego County fund, went on Mr. Fong's trip, the fund had conceptually approved its commitment to the Concord Asia Infrastructure Fund. The approval was contingent on Mr. Rose being able to undertake due diligence on the fund in Asia - which did occur.
"We feel very confident in this group," said Mr. Rose, who pointed out the fund isn't the first from CEF. And if "things go well, as we expect, we would be investors in their subsequent funds," he said.
The University of California, Berkeley, with $36 billion in pension and endowment assets, has commitments of about $120 million to Asian private equity. "And it's likely we'll make another commitment to the AIG Asian Infrastructure Fund," said Treasurer Patricia Small. A second $2 billion tranche for that fund is being marketed.
Asia isn't the only non-U.S. region the University of California finds attractive. "We have more private equity investments (commitments of $165 million) to Latin America than Asia," she said.
More investors are considering Asia because they are expanding their private equity allocations outside of their home markets. As they look abroad, they see booming economies in Asia and huge populations that are developing a larger middle class with spending power. At the same time, the need for capital is enormous in Asia, giving rein to a growing variety of investment opportunities.
On the downside, many of the fund managers have relatively short track records in Asia, making it difficult to discern the best fund vendors. And with infrastructure funds, questions have arisen over the willingness of some governments, such as China's, to allow investors to collect high rates of return.
Thus, it was only this year that Abbott Capital Management, New York, made its first sizable allocation to a specific Asian private equity fund on behalf of two unnamed pension funds. Abbott, which specializes in private equity investing, chose the Transpac Capital 1996 Fund.
Abbott Partner Gary Solomon said Transpac "has a long track record, good rates of return to investors averaging net high teens over long periods of time with prior funds" and a comparatively stable cadre of senior managers.
But not every institution finds attractive investments in Asia.
The $5.7 billion Los Angeles City Employees' Retirement System doesn't have any specific private equity commitments to the region, even though two officials of the fund were on Mr. Fong's January trip to Asia. Chief Investment Officer Dan Gallagher said the system's alternative investments program is "relatively new" and its consultant, Pathway Capital Management, Irvine, Calif., hasn't yet recommended any Asia-specific funds.
The $68 billion California State Teachers' Retirement System, Sacramento, and the $8 billion Los Angeles Fire and Police Pension System also were represented on Mr. Fong's January trip. But neither fund has yet made direct stake investments targeted to Asia.
Thomas Lopez, chief investment officer of the Los Angeles Fire and Police fund, said his fund uses two gatekeepers to assess funds' attractiveness. So far, they have felt existing offerings "were not attractive enough to warrant an investment," said Mr. Lopez.
