Paul Capital looks to build Asia secondary niche

By Tony Munroe

HONG KONG (Reuters) - As Asia's private equity market matures, U.S.-based Paul Capital Partners sees increased opportunities to buy out investors making early exits from existing funds.

Paul Capital manages about $4 billion globally in so-called secondary investments and opened its first Asia office in January.

It is looking to develop a little-known market which has accounted for a tiny share of Asian private equity deals.

Jason Sambanju, a director who opened Paul Capital's Hong Kong office, said awareness of the secondary market is growing as a tool for private equity investors to manage their holdings, which are typically governed by multi-year lockups.

"There's an increased awareness that (in) private equity, even though it's a long-term investment, there are players out there who are able to kind of step in the intermediating time between investment and exit," he told the Reuters Hedge Funds and Private Equity Summit on Tuesday.

"The investor can realize some of the gain from that initial investment but achieve near-term liquidity, and we kind of hold for the remaining period of time and see the final exit."

Sambanju said that in the United States and Europe, about 3 to 5 percent of total funds raised eventually cycle through secondary market investors such as Paul Capital. In Asia, the figure has been closer to just 1 percent, he said.

About $37 billion in private equity funds for Asia were raised last year, according to the Centre for Asia Private Equity Research Ltd.

Sambanju said the boom in private equity fundraising in Asia began in 2005, and the funds raised since will be the source of deals in coming years. "Anything that's been raised pre-2005 is an opportunity itself," he said.

Paul Capital was founded in 1991 and competes with players such as Coller Capital and Lexington Partners Inc in the secondary market.

It also invests in buyout funds that might be looking to raise a further round of capital.

Banks are a key potential source of deals for Paul Capital in Asia, said Sambanju. Banks, especially in Japan, may look to shed their private equity holdings as balance sheets come under pressure amid the global credit crisis.

Sambanju, who spent more than seven years with Asian private equity firm Symphony Capital Partners before joining Paul Capital in August, said that about 6 to 8 percent of funds have been invested in Asia.

The firm is looking to grow that share now that it has a full-time presence in the region.

Sambanju declined to identify specific deals but said Paul Capital looks for investments ranging from $20 million to $500 million, or more.  Continued...