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Asia-Based Public Pension Funds Investing in Private Equity – November 2013

by Valerie Lee

  • 08 Nov 2013
  • PE

The number of public pension funds based in Asia that are actively investing in the private equity asset class has grown by a substantial 89% since 2008. Asia is home to more than 3.2% of public pension fund investors in private equity globally, compared to approximately 1.8% in 2008. Preqin’s Investor Intelligence tracks Asia-based public pension funds that collectively hold funds under management of just over $1.8trn

Preqin’s future fund searches and mandates feature shows that at least 29% of these Asia-based public pension funds will continue to actively invest in the private equity asset class over the coming year. The majority of these investors are based in South Korea (60%), followed by Malaysia (20%) and Thailand (20%). Investors that are currently investing in the private equity asset class and will continue doing so are South Korea-based Korean Teachers’ Credit Union and Korea Teachers’ Pension Fund, and Malaysia-based public pension fund Kumpulan Wang Persaraan, just to name a few. Of these public pension funds actively investing in the asset class over the next 12 months, 80% will be committing to vehicles investing not only in Asia-Pacific but also with a global mandate. Conversely, a smaller percentage of the corpus (20%) seeks private equity funds that are not located in the Asia-Pacific region at all. Emerging markets are also well represented, with 60% of the pool looking to invest in developing economies. One investor looking to invest in emerging markets is the KRW10trn ($9bn), South Korea-based Korea Teachers’ Pension Fund.

South Korea and Philippines are each home to 22% of Asia-based public pension funds investing in private equity in 2008. However, in 2013, South Korea had increased its share to 59%, and the Philippines did not have any public pension funds actively investing in the asset class. This is a good indication of the way in which private equity has developed in the two regions, with South Korea being one of the most experienced and sophisticated Asian countries in the private equity arena.

Japan represents the next most common location for Asia-based public pension funds investing in Private Equity in 2013, accounting for 18% of these investors. This is followed by Malaysia (11%), Thailand (6%) and Indonesia (6%). In terms of total assets it is worthwhile to note that both South Korea and Japan have the biggest public pension funds. Japan’s Government Pension Investment Fund with over $1trn in assets is currently reviewing the feasibility of the asset class and looking at potential private equity strategies. The public pension fund is considering making its maiden investment in private equity funds which will boost the private equity market in Japan and could encourage other public pension funds in Japan to follow suit.

When looking specifically at funds based in South Korea, only 10% of these investors have an investment mandate that targets solely the Asia region. Conversely, a considerable 90% will consider seeking wider global exposure by investing in private equity funds that are located outside Asia. Eighty-nine percent of the investors in this pool that are seeking exposure outside of Asia will target North America while more than half will target Europe.

Asia-based public pension funds investing in private equity have a primary preference for venture capital and buyout vehicles, each preferred by 73% of the corpus. Eighty-two percent of the investors that have a preference for venture capital funds are located in South Korea, followed by Indonesia and Japan at 9% each.  Similarly for buyout funds, South Korea-based investors represent the majority of the corpus with 64%, followed by Malaysia at 18% and the remainder split equally between Thailand and Japan. Growth funds are the next most preferred choice with 53% of the investors citing a preference for.

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