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Asia-Based Government Agencies Investing in Private Equity – April 2013

by Mitul Patel

  • 26 Apr 2013
  • PE

Government agencies can play a key role in defining a particular state or region’s investment ethos. These agencies, usually part of a central government, take on an important responsibility of safeguarding and growing the assets of the particular governing body that it represents. Government agencies can be a permanent feature of central government or a semi-permanent organization created to aid the promotion of growth and development in specific regions.

Preqin currently tracks 48 Asia-based government agencies that are currently investing in private equity funds or are actively considering making their maiden commitment to these vehicles, as well as a further eight investors that will resume their private equity programs in the longer-term. Almost 70% of these Asia-based government agencies are based in China (48%) and South Korea (21%); a further 9% are located in India, while Japan and Malaysia are each home to 5% of these institutions. The remainder of these government agencies are location in countries such as Kazakhstan, Singapore, Taiwan and Thailand. Fifty-three percent of these LPs are actively seeking to make further private equity commitments in the coming year, and their specific investment mandates can be found in Preqin’s Investor Intelligence database.

Unsurprisingly, a common theme in the private equity strategy preferences of Asia-based LPs resonates through to the government agency universe as well; the favour for venture capital and growth stage funds. Seventy-three percent of Asia-based government agencies are looking for exposure in the venture capital market (including both stage-specific and generalist vehicles), and 54% are looking for opportunities in growth strategies. Buyout is the next most preferred strategy, with 23% of the investor pool interested in these funds. The fourth most favoured private equity strategy amongst Asia-based government agencies in private equity is distressed private equity, with only 4% of these investors interested in this type of investment.

In terms of their geographic preference, all but one Asia-based government agency will consider private equity investments within Asia itself, showing a staunch commitment to developing business and economies close to home. Some of these LPs will also seek opportunities to develop emerging markets overseas such as Africa, South America, Central Europe and the BRIC economies, as part of a wider mandate that includes Asia-based investments. In terms of regional preferences within Asia, the majority (53%) will seek opportunities in Greater China, 25% are targeting the Far East, 15% will invest in South Asia and a further 11% are targeting ASEAN.

Due to the typically developmental nature of this investor group, half of Asia-based government agencies investing in private equity will actively commit to first-time funds raised by entirely new fund managers, and a further 3% will invest with spin-off teams. A further 29% will consider doing so on a case-by-case basis, leaving only 18% that will not commit to first-time funds.

Government agencies in Asia control a large sum of assets and will continue to play a major role in the make-up of the private equity industry within the region. Can fund managers seeking commitments from this stable investor grouping provide suitable opportunities to keep them satisfied?

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