The globalization of private equity (PE), in particular a shift of capital to Asia’s most favored emerging investment destinations India and China, will not be deterred by an adverse credit environment. Recent findings from Coller Capital’s Global Private Equity Barometer indicate that many GPs (private equity firm managers also known as General Partners) will be looking to reposition their portfolios to better reflect the current economic realities.
Overall investor commitment to PE remains strong and 97% of LPs (Limited Partners – PE fund investors) plan to maintain or increase their allocations. 43% of LPs still expect net annual returns of 16%+ over the next 3 to 5 years.
India and China are in a close tussle to top the list of most attractive emerging markets for GP investment over the next three years in the region, followed by the developed economies of Japan and Australia.
North American LPs with 6% or more of their private equity exposure in the Asia Pacific will grow to almost 70% within three years from the current 41%.
European LPs are less focused on the region. About a third of LPs with an Asia-Pacific exposure of 6%+ today will increase to nearly two-thirds over the next 3 years.
The survey noted that investors recognize a paradox in their collective hunger for Asia-Pacific private equity: over three quarters believe the ready availability of capital is making it too easy for weak GPs to raise funds in the region.
PE companies focused on emerging Asian economies raised US$26.2 billion in commitments in the first half of this year, as compared with $28.6 billion raised in 2007, according to the US-based Emerging Markets Private Equity Association.
The Coller survey revealed that two thirds of LPs expect to reach or breach their PE allocations by this time next year. North American LPs will be over-stretched as 28% expect to be over their allocations by December 2009.
“Despite the current economic challenges, investors have a long-term positive view of private equity and plan to increase their allocations to the asset class. Further, the globalization of private equity is not slowing: over the next several years, more North American LPs will shift more of their capital to private equity’s newer markets, especially the Asia Pacific region. This shift will have important fund-raising implications for North American GPs in the future.” said Jonathan Gutstein, a partner at Coller Capital.
Coller Capital is a leading global investor in private equity secondaries — the purchase of original investors’ stakes in PE funds (venture capital, buyout and mezzanine), with approximately $8 billion under management.
Coller Capital’s Global P.E. Barometer, Winter 2008
