Rather than focusing on the numbers, limited partners (LPs) are also looking for soft skills when deciding which general partners (GPs) to write cheques for, amidst a shifting investment landscape in the region, according to one of Asia’s top investors.
Integrity, talent, and awareness are some of the key qualities when it comes to assessing successful GPs, said Rebecca Xu, co-founder & managing director of Asia Alternatives, in a fireside chat at HKVCA’s Asia Private Equity Forum 2025 on Wednesday.
How a company’s founders can work together in partnership to build their firm, develop the talent of their team, and align their core interests will eventually lead to success and be able to deliver the kind of returns that LPs look for.
Being aware and cautious of the macro environment is also important. “In the early days, I remember some GPs would be very proud in declaring that ‘we don’t care about the macro, we only invest in deals’. That is not right,” she added.
“It’s all about whether a GP can truly read and understand what is going on in the world around him or her, or their firm. That has to do with understanding the macrodynamics.”
Asia Alternatives is a fund of funds that specialises in private investments across the Asia-Pacific region. Roughly half of the firm’s capital is allocated towards GPs in China, while the other half is deployed across the rest of Asia, according to Xu.
Besides the US, China is the only other market that has the same pool of talent and skills within its private equity (PE) and venture capital (VC) ecosystem, she argued. “The depth and breadth of this market is not just going to go away.”
“So if you’re not investing in China, then where else?” Xu questioned.
But China has not come up to the mark for some LPs. Investors are looking for investments that can deliver alpha returns consistently, especially amid a volatile market to hedge their portfolios against risks.
China has not been delivering on returns due to a multitude of reasons, not limited to macroeconomic factors that are hindering its investability and making LPs pullback. Certain GPs are not asking for re-ups from their existing LPs, while some LPs are not asking to re-up either, according to Eric Mason, head of PE at Church Pension Group.
“We were in the mid-teens in China exposure prior to the reset, and we are down to the low- to mid-single digits,” said Mason.
It is among the many pension funds, endowment funds, and other institutional investors significantly cutting back on their exposure to the world’s second-largest economy over the last two years. In light of this, other markets are driving the hype in Asia.
“In Asia, what we’ve seen in our portfolio is India and Japan are driving not just the investment activity but the realisation activity,” said Liam Coppinger, senior managing director & head of PE in Asia for Manulife Investment Management.
He was referring to the realisation multiple, used to refer to the actual money paid back to investors, which is better known as distributed paid-in capital (DPI).
“I’ve found that in our own programme, our China-focused funds have done more deals outside of China in the past couple of years,” said Coppinger.
Going global has become one of the many ways homegrown fund managers have been trying to savour their chances at generating higher returns. Alongside looking outside of China, some of them have been slowing down the pace of their dealmaking altogether, underscoring the difficult environment.
“It is just close to impossible to raise a China venture-focused fund in this environment, in terms of deployment, it has been very slow because nobody wants to be back in the market raising a fund,” said Tommy Yip, founder & managing partner at Unicorn Capital Partners.
Even managers with larger fund sizes who have raised capital in the past four or five years are struggling to put their money to work with a dearth in large, growth-stage investment opportunities and pre-IPO companies, he added.
The market reset is going to force fund managers to think smaller; this means average fund sizes going down and mega funds becoming more scarce. He estimates that funds will be raising some 80% less than their predecessors if they get lucky.
