Asia-focused private equity firm Affinity Equity Partners is seeking to raise as much as $3.5 billion in a new fund, sources said, testing investor appetite for Asia funds at a time when a number of global players have already launched big funds.

Affinity has hired London-based MVision to advise it on the fundraising, the sources who had direct knowledge of the plan told Reuters. It has started marketing the fund and scheduled a meeting with investors later this month, they added.

The fundraising comes as a tough global economic environment forces limited partners (LPs), who provide capital to the buyout industry, to tighten their purse strings and scrutinise the performance of funds before making new commitments. Investment opportunities are opening up for private equity but volatile stock markets are also making exits harder.

Founded in 2002 by K.Y. Tang, the former chairman of UBS Capital in Asia-Pacific, Affinity aims to take on the global giants with a fund size up to 25 percent larger than the last one it raised in 2008.

The targeted amount is the same as that of U.S. private equity firm Carlyle Group's planned new Asia fund. Other global funds raising capital for Asia investments include KKR & Co, which is seeking up to $6 billion, while TPG Capital and another Asia firm, RRJ Capital, aim to raise up to $5 billion each.

In all, about $130 billion is being sought by 386 funds for Asia investments, according to data provider Preqin.

The surge of new jumbo funds is raising doubts about the market's capacity to absorb them.

"How many pan-Asia funds will investors support, that's the question now," said one senior executive from a private equity firm based in Asia which is not raising new money.

Limited partners have previously been investing in four to five regional funds in Asia, but are expected to cut back to two as they trim their portfolios in line with a global trend, the industry executive added.

Affinity did not respond to requests for comment. MVision declined to comment. The sources mentioned in the story did not wish to be identified as Affinity's plans are confidential.

Underscoring the challenges of fundraising, private equity funds have raised around $23 billion so far this year for investments in Asia, and may struggle to match last year's total of $53 billion, according to Mitul Patel, manager, Asia Research, at Preqin.

Ex-TPG dealmaker Weijian Shan's $2.4 billion fund for PAG Asia Capital and Mount Kellett Capital Partners' $4 billion, are among the Asian fundraisings that closed this year, according to Preqin.

ASIA CATCHING UP

Many others are watching closely the response to the latest round of fundraisings before launching their own funds. Private equity fundraisings are often benchmarked on what are called first closings, which allow funds to begin investing before raising the full target amount.

KKR has hit $3 billion for its first close, while RRJ is near a first close of $2.7 billion. TPG, which launched its fund first, has yet to hold a first close.

Asia's share of the global fundraising pie has risen since the last time Affinity raised money in 2008 and the region is poised to overtake Europe as the world's second-largest private equity market, Preqin's Patel said.

But 2008 was the peak of the fundraising cycle, with a record $84.4 billion raised for Asia. Funding has been tighter for private equity firms globally and in Asia since then. Private equity firms typically raise new funds every five years, and Asia, like the rest of world, is now in a new cycle.

Big global LPs that invest in private equity, such as U.S. pensions giant CalPERS, meanwhile, are going through their own pains in a low-return environment and pruning their investment portfolios.

"This is the challenge all of us are facing. The past is past, and how do we make the case that we're poised for the future, and deserve to be in someone's portfolio," said the private equity executive.

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