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Fund focus: Aquilius targets Asia’s secondaries gap

Aquilius Investment Partners, a real estate secondaries investor, is tracking significant, opportunistic private equity deal flow in the current exit malaise. Diversification is the theme of the maiden fund

When Singapore’s Aquilius Investment Partners set up shop in 2021, the founders wanted to address what they saw as a fundamental lack of dedicated secondary capital in Asia. It is perhaps telling that the firm didn’t finish raising its debut fund until that year’s investment boom had ended and the ensuing exit slowdown had come into focus.

The fund closed this month with USO 400m in commitments from a mix of sovereign wealth funds, endowments, and family offices. Aquilius declined to specify how long the fund was in the market but described it as a rapid fundraise driven by strong demand.

The founders’ credentials offered some comfort to LPs. Aquilius was established by Bastian Wolff, a 15-year veteran of Partners Group, and Christian Keiber, who spent nine years at The Blackstone Group. Wolff served as Partners Group’s head of private real estate in Asia, while Keiber was a managing director covering Southeast Asia and Australia private equity for Blackstone.

Part of the pitch to investors was Asian exposure uncoupled to a specific market or strategy. Keiber describes real estate as the preferred asset class but Aquilius is tracking significant deal flow in private equity, which is expected to represent about 20% of the portfolio.

“You always have investors who prefer certain geographies or asset classes over others, but this is exactly the beauty of this product- that we very consciously focus on diversification,” Keiber said, when asked if LPs had specified that they wanted to avoid China exposure.

“We want to make sure that the portfolio we construct doesn’t depend on a particular sector or a particular geography. If you have a long-term positive view on the region, this is a product that will resonate very well with you.”

Deal flow to date is said to span the gamut of transaction types, from traditional LP fund positions to GP-led and direct secondaries. Preferred equity or net asset value (NAV) financing arrangements – seen as effective in solving specific liquidity problems with upside potential and a minimal upfront haircut- are also part of the offering.

Wolff observes that GP-led deal flow is growing given the difficult exit environment, including complex fund recapitalisations, joint venture recaps, and continuation vehicles. But this is not outpacing traditional transactions. He estimates up to 70% of activity since the start of the year has been LP-led, driven by investors altering regional allocations and addressing the denominator effect.

“What’s probably more relevant today is this home bias, where investors are just shifting to what they’re more familiar with, what they feel is safe, and where they’re reallocating away from stuff that’s very far away from them,” Wolff said, flagging deal drivers such as personnel changes, regulatory changes, timing constraints, asset fatigue, and a desire to shore up balance sheets.

“Pinpointing one or the other is challenging, but we have observed that there is an increasing volume of LP-leds since the second half of last year, and specifically into 2023.”