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An unspoken argument between Asia [with its ‘greenfield’ risk of the developing world] and Continental Europe [with its ‘brownfield’ stability] was fought between two unlisted manager visitors to Australia last month. MICHAEL BAILEY reports.

Talking up the benefits of the world outside the US and Western Europe, PCGI is a private equity fund-of-funds joint venture between former staff of the US Government’s Overseas Private Investment Corporation [OPIC], and the Pacific Corporate Group [PCG]. Its US$1 billion funds under management to date is principally from CalPERS, the largest investor in a 12-year closed-end fund which shoots for a double-digit IRR, and offers an ‘Asia Only’ pool as well as one concentrated in Latin America and Eastern Europe.

Meanwhile, AXA Infrastructure is squarely focussed on France, Italy, UK, Spain, Germany and the Benelux countries, and is up to a third fund after raising €900million for two earlier efforts, which has been spent on 13 infrastructure assets including everything from the UK’s Anglian Water Group to Italy’s Tozzi Wind Farms. PCGI has “target regions” which Steve Cowan, one of the manager’s five co-founders and co-managing directors, observes represent more than 33 per cent of world’s GDP yet today receive less than 15 per cent of its total private equity investment. The target list includes regions and countries which are “developing” in every sense of the word, but also a few which PCGI thinks have private equity markets whose growth is underappreciated and can produce attractive valuations. Interestingly, Japan is on this list [exposure in first fund: 2 per cent], as is Australia.

However like most private equity investors, Cowan won’t be committing any more money here until Texas Pacific Group resolves its dispute with the Australian Tax Office. PCGI likes its target markets to exhibit sustained economic growth, investment grade ratings, sound fiscal and current-account balances, sizeable foreign exchange reserves relative to foreign debt, and low corporate and consumer de-leveraging requirements relative to industrialised nations. These target markets, which include the usual suspects [China, India and Brazil] but also less prominent places [such as Poland], are not expected to go into recession and are forecast to maintain a substantial GDP growth premium to the US and Western European economies, PCGI believes. PCGI was in Australia talking to potential investors about its Global Opportunities Fund No 2, which intends to follow the template of the first in having 20 to 25 relationships with underlying general partners.

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