The financial crisis of 2008 may be a distant memory for some, but its effect is still prevalent in current day investment strategies. The opportunity to capture the rapid growth rates of an emerging market drives investor appetite and presents opportunities, particularly in the financial and business services sectors. The competitive arena in which these industries operate requires constant innovation in order to keep pace with an ever-changing economic climate. Despite the growth rates of many Asian economies showing signs of faltering in recent months, they remain head and shoulders above much of the Western world, and provide some interesting investment opportunities in the services sectors. However, confidence is also a major factor in the formation of investment decisions in emerging markets, and many investors remain sceptical about Asian ventures.
According to Preqin’s Investor Intelligence, there are currently 1,854 LPs that have a preference for, or have previously invested in, business services, financial services, insurance or outsourcing companies. Unsurprisingly, the location most targeted by investors is North America, with 77% of investors having shown a preference for this region; Europe follows close behind with 72% and finally Asia with 55%. Geographically, we see that 59% of LPs are based in North America, 27% in Europe and 6% in Asia. It should also be noted that 114 of 120 Asia-based investors will look to invest domestically, perhaps suggesting that while opportunities in Asia are readily available and profitable, global investors remain unconvinced.
In terms of investor types, 64% of all private equity fund of funds managers on Preqin’s database look to invest in the services industries. This is followed closely by secondary fund of funds managers (55%) and public pension funds (49%). However, 75% of sovereign wealth funds, 68% of superannuation schemes and 67% of public pension funds that already target business and financial services show preferences to Asia, which further reiterates this appetite for the region.
As global confidence in Asian markets seems to grow, perhaps bolstered by proposed structural reforms seen in many Asian economies, it will be interesting to see whether commitments from investors into Asia-focused vehicles will increase into 2015.