Over the past five to ten years the private equity industry in Asia has experienced substantial growth, as have many of the countries in the region compared to the more subdued growth rates in North America and Europe. While fundraising has been a challenge in developed markets since the onset of the global financial crisis in 2008, the number of Asia-focused private equity funds to have held a final close, and the amount of capital raised, has increased year-on-year since 2009. Preqin recently spoke to over 100 institutional investors around the world with an interest in investing in Asia, in order to look at the attitudes of these LPs towards the region and what their plans are for the future.
Three-quarters of institutional investors interviewed allocate up to 75% of their private equity portfolio to investments in the Asia region, with a further 9% having no set allocation and instead prefer to be able to invest when appealing opportunities arise. Sixteen percent allocate over three-quarters of their portfolio to Asia, although the vast majority are either based in the region or have a mandate to focus on investment opportunities in emerging markets.
Over a third of investors interviewed (35%) prefer to invest in country-specific funds, which allow them to gain increased exposure to a certain region they feel is presenting the most favourable investment opportunities. Over half (58%) of investors interviewed believe China is presenting the most favourable investment opportunities, followed by India, which was named by 36% of LPs interviewed. Although investors have become more confident investing in Asia, 55% of LPs interviewed have a preference for investing with local mangers that have an office in the investee country, highlighting the importance of local knowledge and expertise.
Growth funds are the most popular fund type for LPs that look to invest in Asia, reflective of the continued growing nature of the industry compared to Europe and North America, where buyout funds continue to be the most popular investment preference among LPs investing in these more developed regions. As investors have become increasing familiar and experienced with investing in Asia, direct Asia-focused funds appear to be a more common investment route, with almost half (48%) of LPs interviewed preferring this type of investment, compared to fund of funds vehicles, which may only include a small allocation to Asia as part of their wider remit.
The outlook for Asia seems positive both for the coming year and the longer term. A significant 65% of LPs interviewed will look to maintain their level of exposure to the region over the next 12 months, while over a third (34%) will look to increase their allocation to Asia. Over the longer term, 94% of LPs interviewed will look to maintain or increase their level of exposure to the region. It is evident, therefore, that investors are increasingly confident investing in Asia and look set to maintain a large interest in the region as the saturated markets of North America and Europe continue to falter.