In a conversation with the HKVCA, Gabriel Li discusses the positive outlook for private equity and venture capital in Asia and why Hong Kong continues to represent the best place for firms to headquarter their regional businesses

Asia Trending Upward

The 5th Asia Private Equity Forum (APEF), organized by the Hong Kong Venture Capital and Private Equity Association (HKVCA), was held at the Hong Kong Convention and Exhibition Centre on 21 January 2105 and featured 64 speakers and panelists from all corners of the region.

Among the notable industry experts who spoke at the event was opening keynote Gabriel Li, Managing Partner and Investment Committee Member, Orchid Asia Group (OAG). Li addressed the state of private markets in China in his speech and, in a subsequent interview held during the Forum, shared with the HKVCA his views on private equity and its growth trajectory in Hong Kong.

“Hong Kong makes a lot of sense as the regional headquarters of any private equity firm and the reason is simple: about half of all the capital that has come into Asia has gone into mainland China, the largest economy in the Asian region. Hong Kong is a part of China, it is on the doorstep of China, it has the best services support ecosystem in the region and it is closest to the investment market. So it makes sense for us as practitioners to base our headquarters in Hong Kong,” he said.

Sound logic but what about accessing other markets in Asia Pacific? The member states of ASEAN, for example?  South Asia and Australasia? According to Li, many regional private equity firms have offices in multiple countries. “I am not saying that for a pan-Asian fund it should have only one office and it should be in Hong Kong. It makes sense to have multiple offices across several countries for a pan-Asian fund. But in terms of basic support services and in tax and in accounting, Hong Kong has some of the best qualified professionals and services firms in the region, which allows us to better support our LPs,” he said.

In terms of trends, this year’s APEF reflected both the increasing growth and interest in Asian private equity. Attendance at the event was up significantly and several speakers noted that encouragingly, the pace of distributions was catching up with the industry’s rate of growth and positive performances.

“In 2009, a bad year, there was roughly US$19 billion returned to investors. In 2014, for Asian private equity we expect close to three times that, US$60 billion, to have been returned to investors. This trend is expected to continue because of recent large IPOs in the US, in the tech space, and especially related to China with the listing of Alibaba and other successful companies. I expect both the return and the liquidity to continue to improve,”  Li said.

He also highlighted the growth of trade sales to strategic buyers in Asia and cited the investments of large US medical companies such as Medtronics and Stryker.

“They are buying entire companies in Asia and China, many of which have been funded by venture capital and private equity firms over the past five to 10 years. High valuations have not directly impacted our private equity business in China mainly because we invest in earlier stage growth capital companies. Many of their valuations are reasonable in terms of the metrics, and because of the recent relatively weak performance in public markets the valuations in private equity markets have come down somewhat,”  Li concluded.

Highlight Video - APEF 2015

Bull Capital Partners make direct investments in the Greater China region, primarily in high-growth, scalable, market-leading companies with a particular emphasis on the consumption/retail and services, high-end manufacturing, technology and environment-related sectors. Bull Capital Partners manages the Peregrine Greater China Capital Appreciation Fund, L.P. and Bull Capital China Growth Fund II, L.P. Bull Capital Partners has USD 400 million of assets under management. Headquartered in Hong Kong, Bull Capital Partners has offices in Hong Kong and Shanghai.