Banks are among the most highly regulated firms worldwide; the impact on the financial industry and the economy is greatly detrimental should they become insolvent or fail. As such, these firms are typically prohibited from investing in private equity due to the asset class being deemed as high risk. Instead, banks mainly gain indirect exposure to the asset class by providing advice and capital for deals as well as setting up their own investment arms.
Preqin’s Investor Intelligence online service currently tracks 78 Asian banks which have a preference for private equity funds, which together have assets under management of $10tn. Forty-four percent are headquartered in Japan, 23% are based in India and 15% operate from South Korea. It can be noted that apart from these three markets, banks from other Asian countries (which include China, Hong Kong and Singapore) do not even constitute 3% of the corpus each.
Fund type preference is highly skewed towards venture capital funds (including stage-specific and generalist vehicles), with a significant 68% of Asia-based banks with a preference for private equity favouring such opportunities. The next most preferred strategy is growth; 46% of the investor pool targets this fund type. This is closely followed by buyout (43%) and distressed vehicles (33%), which include distressed debt, turnaround and special situations funds. The chart below illustrates the top five fund type preferences of banks in Asia.
In terms of geography, the majority (63%) of banks headquartered in Asia with an inclination towards private equity focus on the Far East region, while 27% invest in South Asia. Given that 82% of the investor pool consists of banks operating within these economies, it is unsurprising that they have a home bias. A further 23% of the corpus maintains a global mandate, while 22% allocate capital to emerging markets.