Published: February 28, 2007, PEI Asia

On the record: Bruno Raschle, Adveq Management

Adveq is a Zurich-based fund of funds with EUR 2.5 billion under management. Founded in 1997, the firm operates four separate fund investment programmes – European private equity, technology, special situations and, since 2006, Asia. Here Bruno Raschle, the firm’s founder, discusses private equity’s prospects in the Asian market.

How long has Adveq been operating in Asia?

We made our first investment in China in 1998 and committed to our first Japanese fund in 1999. In 2002, we hired Asian nationals for our investment team based in Switzerland. So far we have made commitments to approximately a dozen managers across Asia and Australia.

In the middle of last year, we launched a dedicated Asian investment programme to primarily invest in India, China, Japan and Australia, and in December announced that the fund already had commitments of over USD 100 million. Prior to creating the Asian programme, we always had the flexibility to invest a small portion of our other funds of funds in Asia. Take our technology programme for instance, which primarily invests in North America: since venture capital has become a global business, it seemed only natural to include an Asian allocation as well.

Will your Asian activities be mainly about venture?

It’ll be a diversified portfolio including venture, growth capital, buyouts and special situations.

Do you favour locally grown Asian funds or international groups with Asian outposts?

We’ve done both, but the main focus is on domestically grown firms. There are many considerations underpinning this: we want managers to be part of local networks, we analyse the nature of their value creation process, we need to understand whether they target local or international markets, and we need to be sure that they operate in line with Adveq’s philosophy of building businesses.

International LPs often argue that manager selection in Asia is more difficult than elsewhere, in part because track records are short. Do you agree?

Adveq has always invested in first-time managers, so for us, evaluating opportunities in Asia is business as usual, with the caveat that that you are dealing with different cultural dynamics. It is true though that Asian private equity does not yet have a record of sustainable return generation. This is why diversification along multiple aspects is important: by geography, industry, investment stage and strategy, GP business model, return generation philosophy, and so forth.

Are LPs right to demand a risk premium for Asia?

The answer depends on your view of globalisation of private equity. If you look at private equity as a global industry, then you can argue that no risk premium is required. But if you are looking at it as an emerging market play and factoring in things like political risk, then you may have to apply a premium. As a firm, we’re more inclined to look at Asia as part of a globalised private equity market, in which international diversification is critical.

Do you predict strong growth for Asian private equity in the coming years?

I’ve just seen some preliminary data for 2006, according to which Asia accounted for 15 percent of private equity capital invested globally last year. That’s very significant. However, the bottleneck is not capital, it’s the lack of qualified managers operating in the region.

Can the bottleneck be eased in the coming years?

I don’t think so. What you need is a combination of factors, including greater awareness of private equity in the local business communities, experienced investment professionals, the build-up of a suitable investment infrastructure, viable exit markets et cetera.

What is the biggest challenge facing Asian private equity today?

An exit mentality needs to develop. We have seen that Asian managers can raise money, and we’ve seen that they can invest it, although we won’t know for some time how good their deal selection has been.

What we haven’t seen yet is whether they can build companies for exit. I’m not talking about the occasional homerun such as Baidu – I am talking about consistent realisations from Asian portfolios.