Keeping the faith in alternative assets

PAG, an alternative investment firm focused on the Asia-Pacific or APAC region with US$50 billion (HK$392 billion) in assets under management, has filed for an initial public offering in Hong Kong.

PAG is aiming to raise up to US$2 billion through the IPO, according to reports.

It was one of the suitors for local telecommunications provider Hong Kong Broadband Network (1310) before the sale stalled amid market volatility last month.

The company came together through the combination of three core strategies - credit and markets, private equity and real assets - into one platform in 2010.

Among them, the credit and markets strategy was grown out of Pacific Alliance Group in 2002, the private equity strategy was founded in 2010 by Chinese economist Shan Weijian, and the real assets strategy was grown out of Secured Capital Japan which was co-founded in 1997.

In the past five years, all the strategies have seen assets under management expand with a compound annual growth rate of 30 percent in credit and markets, 22 percent in private equity, and 20 percent in real assets.

PAG operates two flagship funds: PAG Asia Capital and PAG Growth Capital.

PAGAC targets large-sized control buyouts and structured minority transactions across APAC and globally for companies with an APAC focus. And PAGGC targets significant minority positions in new economy companies primarily in China, with a focus on healthcare, media and technology, financial services and other sectors.

Over the past few years, PAG has been active in private equity investment across the Asia Pacific region and has invested in Tencent Music, China Youran Dairy (9858), Nayuki (2150) and Wanda Business Management among other firms, several of which have since gone public.

Thanks to these investments, the firm's net profit in 2021 rose 16 percent to US$305 million over a year earlier, while its total income rose 15.5 percent to US$737 million in 2021.

The majority of PAG's income comes from management fees, which represented 71 percent, 55 percent and 54 percent of the total income in 2019, 2020 and 2021 respectively.

PAG has attracted the interest of global private equity giant Blackstone Investment, which took a 19.99 percent stake for US$400 million in the firm in March 2018, and still holds 17.60 percent after dilution.

And earlier this month, PAG completed the purchase of a Japanese solar platform from the US-based First Solar, adding to its existing portfolio of solar farms and making it a leading player in renewable energy in the country.

In recent years, the worldwide alternative asset management industry has developed dramatically, both in absolute and relative terms to the entire addressable asset management market.

According to global advisory firm NMG, the worldwide alternative asset market grew from US$6.6 trillion in 2011 to US$17.5 trillion in 2021, reflecting a 10.2 percent compound annual growth rate, exceeding the 8 percent CAGR for the whole global asset management market over the same period.

PAG does warn of risks in its filing, saying that difficult market and economic conditions could adversely affect the company and its funds, and that its line of business is "intensely competitive both with respect to fund investors and investment opportunities."

The company will use 75 percent of the net proceeds to seed new strategies while the remaining 25 percent will be used to continue its investment in the PAG infrastructure across technology, research and development, as well as environmental, social, and corporate governance initiatives.