The aftermarket performance of portfolio firms is increasingly being taken by limited partners (LPs) as an important benchmark to assess their venture capital and private equity backers in an over-heated public market, according to an Asia-focused investor.
“In the past couple of weeks, we have seen some much-needed correction in global public market sentiment, which has removed some froth from certain overheated pockets,” said Gong Jie, a Hong Kong-based partner at UK-based investment firm Pantheon Ventures, in a recent interview with DealStreetAsia.
“Despite this correction, for many companies with strong fundamentals, the valuation re-rating between pre-IPO marks and current marks based on the stock prices still amounts to a substantial uplift, not to mention the money multiple, especially for those GPs that invested early,” she said.
The aftermarket fluctuation of newly-traded companies gains significance amidst a robust exit market in Asia, especially in mainland China, that is paving the way for investors to cash out profitably through trade sales and more prominently, initial public offerings (IPOs).
Issuers seemed unfazed by the coronavirus pandemic. According to consultancy PwC, there were 118 new listings and 139.3 billion yuan ($20.38 billion) in total funds raised across mainland stock exchanges in Shenzhen and Shanghai in the first half of this year (H1 2020), an increase of 84 per cent and 131 per cent, respectively, from a year-ago period.
With the trading frenzy on its Nasdaq-style STAR Market, the Shanghai Stock Exchange (SSE) topped the global IPO market in H1 2020 with 73 new listings and came second in terms of total funds raised, which stood at 111.7 billion yuan ($16.34 billion).
While the IPO market boom translates to “a strong harvesting season” for institutional investors, Gong said that the exit activity for investors behind Chinese companies reached “a high point” in July, stimulated by interest rate easing and other monetary policies amid a virus-induced economic slump.
In China, Beijing’s IPO market reforms to build a more market-driven, registration-based listing standard have also stoked interest in typically risk-averse investors.
“In a liquidity-fuelled and buoyant IPO environment like this, there is significant quality disparity among company listings. There has been a wide dispersion in aftermarket performance, which is an indication that medium and long-term equity investors are far from indiscriminate. Such aftermarket performance becomes the acid test for company quality,” said Gong.
With $50.7 billion in total assets under management (AUM) by the end of Q1 2020, UK-based Pantheon Ventures invests in private equity, infrastructure & real assets, as well as private debt. The firm has about 340 employees, including 95 investment professionals, across offices in New York, San Francisco, London, Hong Kong, Seoul, Bogotá, Tokyo and Dublin.
Gong Jie is a Hong Kong-based partner at Patheon Ventures and a member of the firm’s Asia Regional Investment Committee and the Global Co-investment Committee, as well as Vice Chairman at the Hong Kong Private Equity and Venture Capital Association (HKVCA). Prior to Patheon Ventures, she was the head of Asia at Morgan Stanley Alternative Investment Partners’ private equity FOF group.
Edited excerpts of the interview with Gong: