Pension Funds in Asia and Australasia Investing in Private Equity – October 2012

by Yong Xiang Pua

  • 19 Oct 2012
  • PE

Pension funds, which include public and private pension funds and superannuation schemes, are traditional capital sources for private equity fundraising. With regular capital contributions and the need to fulfill long-term liabilities, pension funds will continue to serve as important sources of capital for fund managers going forward.

Within Asia and Australasia, there are 98 pension funds that invest in private equity funds. These investors collectively allocate $23.4bn to the private equity asset class. Australasia-based pension funds account for 71% of this private equity exposure while pension funds in Asia represent the remaining 29%. Australasia also has more pension funds (69 vehicles) that invest in private equity funds as compared to Asia (29 vehicles).

Pension funds are the most predominant investor type in Australasia, representing 62% of the regional investors committing to private equity funds. In contrast, their Asia-based peers make up only 7% of the Asian private equity LP community. This suggests that Asian countries typically favour a single, centralized pension scheme, which is not the case in Australasia.

The vast majority of pension funds based in Asia and Australasia will remain active in the private equity asset class in the next 12 months; 86% of Asia-based and 81% of Australasia-based pension funds are seeking new private equity commitments. Three percent of Asia-based pension funds are currently considering making their first private equity commitments while 1% of Australasia pension funds express the same interest. A smaller proportion of the Australasia (17%) and Asia-based (10%) pension fund community, however, will remain on the sidelines over the next 12 months and not seek to make new private equity fund commitments.

Sixty-three percent and 77% of Asia and Australasia-based pension funds respectively seek exposure to private equity via funds of funds, making the fund type the most popular strategy for these investors. Buyout funds are the next most favored by Asia (54%) and Australasia-based (62%) pension funds. Asia-based pension funds (48%) are more likely to invest with first-time fund managers, including spin-off teams, than their Australasia-based counterparts (44%). Australasia-based pension funds will also be more stringent in their selection criteria. Fifty percent of Australasia-based pension funds investing in first-time funds will only consider those managed by spin-off teams, while only 24% of Asia pension funds allocating to first-time funds will impose similar conditions.

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