Preqin’s Private Equity Online currently tracks 22 private sector pension funds and 22 public pension funds based in Asia, which account for 5% of all Asia-based investors in private equity. While relatively small in number, these institutions hold over $1tn in combined assets under management (AUM), allocating, on average, 4.3% of their total assets to private equity, compared with an average of 6.2% for pension funds based in North America and 4.2% in Europe.
Sixty-one percent of the region’s pension schemes hold between $1bn and $10bn in AUM, while those with less than $1bn make up just 15% of the investor pool. Japan- and South Korea-based pension funds represent 59% and 25% of the Asia-based population respectively, with Malaysia and Taiwan each accounting for 5%. Korean Teachers’ Credit Union is one of the largest investors in private equity in Asia, with approximately $3.4bn allocated to private equity. The KRW 26.7bn public pension fund has a global mandate and targets a broad range of fund types, including venture capital, growth and secondaries funds that provide exposure to consumer services, energy and healthcare industries.
As shown in the chart above, both Asia-based private and public pension funds prefer to invest in venture capital vehicles (63% and 71% respectively). Larger proportions of public pension funds target buyout, secondaries and growth funds compared with their corporate counterparts. Fifty-eight percent of Asia-based private sector pension funds and 35% of public pension funds have a preference for fund of funds vehicles, substantially smaller than the proportion of North America-based private sector and public pension funds that have a preference for the same fund type (70% and 72% respectively) and Europe (61% and 81% respectively).
In terms of geographic preference, the vast majority (83%) of Asia-based private pension funds and public pension funds (94%) invest in private equity funds focused on their own domestic market. North America-focused vehicles are targeted to a lesser extent by private sector and public pension funds (78% and 76% respectively), while Asia-based public sector pension funds are more likely to target Europe-focused vehicles than private sector pension funds (76% vs. 56%).
A combination of demographic changes, early retirement and longer life expectancies have increased pressure for pension funds to achieve investment returns to meet their growing liabilities. Moreover, following the Bank of Japan’s adoption of negative interest rates, Japanese pension funds are searching for investment opportunities that can generate a greater yield, with private equity offering an attractive opportunity to many of these institutions. One example is Tokyo-based DIC Corporation Pension Fund, which expects to make new commitments to buyout vehicles over 2016, with a focus on the US and Europe, as well as Japan.