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Banks as Investors in Private Equity - April 2013

by Francesca Braganza

  • 16 Apr 2013
  • PE

Banks investing in private equity funds have historically been significant players in the asset class. Preqin’s Investor Intelligence currently tracks 221 banks worldwide (excluding investment banks), with aggregate assets under management in excess of $33tn, accounting for 4.5% of the whole LP universe.

Nearly half (49%) of banks investing in private equity are based in Asia and Rest of World, including countries such as Kuwait, Japan and Nigeria. Forty percent are based in Europe, with the remaining 11% North America-based LPs. It is perhaps unsurprising with financial regulations such as the Volker Rule (part of the Dodd-Frank Act) and Basel III limiting the private equity investment activities of Europe and North America-based banks that the majority of active investors are now based outside of these traditional private equity markets.

Also unsurprisingly, given the geographical make-up of banks investing in private equity and LPs typically expressing a preference for funds focusing on domestic opportunities, the majority (56%) of banks have a preference for private equity investments in Asia and other emerging markets. Forty-five percent have a preference for funds focusing on opportunities in Europe and 27% have a preference for North America-focused vehicles.

In the next 12 months, of the banks that will be making new commitments and that have expressed a preference for specific fund types, venture capital funds are the most favoured, with 59% of banks targeting this fund strategy. Buyout and growth vehicles are also attracting significant interest, with 56% and 54% of banks looking to make new commitments expressing a preference for these fund types in the coming 12 months respectively. Other fund types banks active in the asset class will target in the next 12 months include mezzanine vehicles (24%), funds of funds (20%) and distressed private equity funds (17%). Interestingly, half of all banks active in the private equity asset class consider investing with first-time fund managers and a further 7% will consider vehicles managed by a spin-off team.

Despite various limitations enforced on banks by financial regulators in certain parts of the world, the investor type continues to be an important source of capital for fund managers on the road. As well as returning investors in private equity, some banks are also looking to make their maiden commitment to the asset class. National Bank of Kazakhstan is one of example of this, having recently issued an RFP for a fund of funds manager to run between $50mn and $150mn. It is encouraging for fund managers that despite regulatory constraints, many banks will continue to commit fresh capital to the private equity asset class going forward.

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