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Asia-Pacific private equity chief plots steady course

If the buildup of Caisse de Depot et Placement du Quebec's infrastructure team in Asia is relatively advanced, private equity is closing the gap, the manager's Singapore-based executives say.

But the man tasked with driving CDPQ's private equity efforts in the region said he favors a slow and steady approach.

The effort to build CDPQ's private equity capabilities in the region remains at a fairly early stage. Asia-Pacific investments accounted for well less than 10% of the firm's C$37.3 billion ($28.8 billion) book of private equity investments at the end of 2017.

"We haven't been here for very long, so in a way we're still new kids on the block," said Meng Ann Lim, who joined CDPQ in June 2017 as vice president and head, private equity, Asia-Pacific.

Pressed on how quickly the region could account for a sizable slice of CDPQ's private equity pie, the 16-year industry veteran, in a Sept. 13 interview, said while a target weight "in the teens" could be realistic within five years, the organization isn't looking to come in "guns blazing (to) deploy billions of dollars."

Instead, CDPQ will take a gradual approach, putting in place local investment talent capable of leading the way in markets — such as China and India — that are deep enough and growing fast enough to sustain continued investments over the years.

India and China, together with Australia, "will be where we're focusing on doing direct investments and co-investments," while countries like South Korea and Japan will be "mostly co-investment markets for us" for the time being, Mr. Lim said.

According to CDPQ's website, direct investments accounted for 75% of the organization's private equity portfolio at the end of 2017, with the remainder in general partner-limited partner funds.

Getting to that point of sustaining a direct investment pipeline will be "about building a team of locals — an Indian leading our team in India, a Chinese leading our team in China, and so on — because private equity is essentially a local business" where being able to plug in and connect with the establishment and entrepreneurs is key, Mr. Lim said.

CDPQ is adding associates and analysts in those countries, as well as in Singapore, to "complement the team," he said.

Mr. Lim said for the first few years, "we will be building up general partner relationships," with a focus on GPs of local country funds in pursuit of co-investment and co-underwriting opportunities.

If private equity globally is becoming increasingly crowded and competitive, Mr. Lim said CDPQ's long-term approach to deploying capital as well as an approach to compensation that allows for long-term incentive plans should give his team some advantages.

More broadly, Mr. Lim predicted CDPQ's "ecosystem" of private equity investors and portfolio companies will increasingly become a strength for the organization in Asia.

With ever-growing competition from general partners, "I need to offer something extra," he said. If I'm looking at a health-care company in China and it happens that they to want to expand in Europe, where (CDPQ) has done a bunch of health-care deals, my team in Europe knows the players, knows the connections, knows the business and can help them along the way," Mr. Lim said.

"That's a big, big plus, and I can't do it alone. I need the resources and the connections of the entire organization."

In coming years, as private equity's competitive landscape continues to evolve, many institutions will try to compete on the strengths of their ecosystems, but "only a handful will be successful in making the transition," Mr. Lim predicted.