TPG-backed secondaries investor NewQuest deploys one-third of $1b fourth fund

Amit Gupta, Partner, NewQuest Capital

Asia-focused secondaries investor NewQuest Capital Partners, which is majority-owned by global PE major TPG, has deployed one-third of its fourth fund, NewQuest Asia Fund IV, L.P. (Fund IV), according to the firm’s Singapore-based partner Amit Gupta.

Fund IV hit its final close in November 2019 at $1 billion.

NewQuest is looking to invest around 40% of the corpus in general partner-led (GP) transactions, up from the one-third allocation made by its previous fund. Aside from the GP-led transactions, NewQuest also invests through direct-secondary or single asset continuation funds.

During the last three to four years, GP-led transactions have shown significant growth in Asia and industry players are expecting it to pick up momentum. “They [secondary transactions] were few and far between in Asia five years ago, but we are seeing signs of maturity of the secondary market here in Asia,” Gupta said.

Despite market volatility, NewQuest sees stronger opportunities in Asia’s secondary market. “The secondary strategy isn’t a counter-cyclical strategy. Having said that, the market volatility does create more opportunities for us,” he continued.

During the COVID-19 pandemic that spread globally around mid-2020, NewQuest had to pause its investment activity despite having a robust pipeline. However, after two-six months, enterprises started showing signs of recovery and activity towards secondary transactions also began to gain traction. The Chinese market, for example, was among the first to see a sharp bounceback.

NewQuest may be showing an investment bias towards pandemic-resilient sectors and new themes such as tech-enabled businesses, healthcare, pharma, IT services, logistics and consumer.

NewQuest, which is largely focused on investing in China and India, was set up in 2011 following a spin-off of Bank of America’s non-real estate PE portfolios in Asia. Back in 2011, its acquired portfolio consisted of over 20 growth-equity and buyout interests in Chinese and Indian companies.

Over 50% of NewQuest’s portfolio still comprises Chinese companies followed by Indian assets.

However, the firm is now looking at the Southeast Asian market opportunistically. NewQuest started focusing on the region in 2016 following the appointment of Desmond Lee as the managing director in Singapore, Gupta said. Southeast Asian companies now constitute 10-20% of NewQuest’s portfolio.

Secondary opportunities in Southeast Asia

In the last three to four years, India and Southeast Asia markets have been facing volatility in the PE exit landscape and, as a result, average holding periods have been extended. “This phenomenon means that a number of funds approaching the end of fund life are looking at portfolio management tools that offer liquidity solutions to their LPs,” Gupta said.

On the other hand, the Southeast Asian companies have also matured and scaled up to the extent that they are capturing the interest of secondary investors.

As a result, Gupta expects the whole exit market over the next five years to be very different than what it is today. “As the secondary market becomes an important part of the overall exit market, the whole exit market will grow,” he continued.

Secondary private equity positions typically have had some time to create value, and in many cases are able to provide full or partial near-term exit opportunities. As a result, NewQuest’s weighted average holding period for realized investments is expected to be shorter than the usual PE investment life cycle, Gupta added.

As of date, NewQuest has $2.4 billion in assets under management (AUM). Its portfolio companies are said to have recorded a 30% revenue growth in 2020.

In February this year, NewQuest announced that TPG had signed a definitive agreement to acquire a majority interest in NewQuest. TPG first acquired a minority stake in NewQuest in 2018. The expanded partnership is expected to boost NewQuest’s secondary business and leverage their expertise in secondary transactions, Gupta said, adding that TPG is not one of its LPs.

The company raised its first fund at $400 million in April 2011. The vehicle was backed by a syndicate of LPs comprising Paul Capital, HarbourVest Partners, LGT Capital Partners and Axiom Asia.

NewQuest Asia Fund II closed at $316 million in mid-2014 with HarbourVest Partners and LGT Capital Partners as returning LPs. The firm’s third fund closed at $540 million in mid-2016, which attracted LPs from pension funds, sovereign funds, insurers and financial institutions based in Asia, North America, Europe and the Middle East.

In September 2018, NewQuest invested as the anchor LP of Singapore-based technology investor Basil Partners’s third fund. In the same year, NewQuest along with Singapore’s GIC backed the restructuring of an asset portfolio held in a yuan-denominated vehicle managed by Loyal Valley Capital.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.