The Squadron Marches to China, India

Asia is the place to be this century. And the latest in the race to attempt to reap the benefits of the consumption boom in China and India is Hong-Kong-based fund of funds, Squadron Capital. Led by CEO David Pierce, Squadron Capital has announced its intention to raise $400 million for investments in Asian private equity funds.

With a large population and a rapidly growing economy, both China and India have witnessed retail sales growth of 20% annually. And this is what Squadron’s new fund, to be launched in May, hopes to capitalize on. The new fund aims to support buyout funds that are focused on the fast-growth markets of China and India.

Based in Hong Kong, Squadron Capital has the advantage of local knowledge and relationships that can push deals through. Despite the larger number of players in the region of late, in the end of the day, it all boils down to “who has the ability to source and execute transactions,” as Pierce said to Reuters.

Just 3 months ago in February, Squadron Capital had closed a $300 million fund of funds, about 70% of which has been invested in 14 private equity fund managers in the Asia-Pacific region. Through the new fund to be launched in May, Squadron Capital expects to generate an internal rate of return of 20%, net of fees.

Squadron Capital isn’t the only fund of funds to have noticed the lucrative Chinese market. J.P. Morgan Private Equity has begun investments in a Hong Kong-based middle market fund in February, while Blue Ridge China has closed its second vehicle with $1.45 billion, according to Dealscape.

While the world reels under the credit crisis, opportunities for fund of funds to invest in distressed companies have grown. As the U.S. and Western Europe contend with return compression, Asia is providing hope for impressive returns, with its focus on growth as a major driver.