The aftermath of the 2007-08 financial crisis unveiled great opportunities for distressed private equity, which encompasses distressed debt, turnaround and special situations vehicles, due to an influx of companies in financial distress. There is still considerable potential and scope for this particular investment strategy in today’s economic climate. Investors remain keen to gain exposure to distressed private equity in order to diversify their investment portfolio. Preqin’s Investor Intelligence database currently tracks 94 Asia-based investors with a preference for distressed private equity. The aggregate total assets of these Asia-based investors with an appetite for distressed private equity are approximately $11.9tn.
Japan hosts the largest proportion of Asia-based investors with a preference for distressed private equity at 47%. South Korea represents the next most significant location at 20%, followed by Singapore at 12% and Hong Kong at 7%. The remaining 14% is split between various countries such as China, India, Kazakhstan, the Philippines, Taiwan and Thailand. As Japan is typically known as Asia’s most mature private equity market, and is home to several investor behemoths in the region, it is not surprising that the majority of Asia-based investors with a preference for distressed private equity hail from Japan.
In terms of investor types, banks account for the majority of Asia-based investors with a preference for distressed private equity at 28%. This is followed by insurance companies (18%), private equity fund of funds managers (9%) and public pension funds (7%). Both private sector pension funds and sovereign wealth funds each represent 5% of this investor pool. Other LP types which make up less than 5% of investors in this corpus consist of a wide range including asset managers, endowment plans, family offices and government agencies.
With regard to geographic preferences, close to half of all Asia-based investors with a preference for distressed private equity display a preference for Greater China (47%). Twenty-six percent of investors target South Asia, while 23% of investors focus on the neighboring ASEAN region. Besides investing in Asia, a significant 76% of Asia-based investors with an appetite for distressed private equity also look outside the borders of Asia when committing to such vehicles. Of the investors in this pool that are seeking external investments in distressed private equity, 70% target North America as an investment destination while 61% target Europe. Other markets include Australasia (27%) and South America (19%). This shows that despite being Asia-based, many within this group are also inclined towards global markets when investing in distressed private equity.