A tough fundraising environment for private equity globally has created a better investment environment for private equity, according to Linbo He, managing director and head of private equity investment at China Investment Corporation, who was speaking at the HKVCA China Private Equity Summit in Hong Kong.
He emphasised that his comments were his own personal opinions and do not necessarily reflect those of CIC.
He explained that over the past 20 years, during periods when fundraising was flat, private equity performed well, while during bullish fundraising periods, such as 2004 to 2008, private equity performance was “very bad”.
“If past history has taught us something about the future, [it is that] we should have more confidence in investing in private equity right now.”
The SWF’s private equity leader also highlighted the high return rates generated by private equity funds versus those in the public markets. In the opening keynote speech he said, “private equity has clearly outperformed the public market.”
He showed return data from an anonymous US university endowment fund, which has a similar investment strategy to CIC. As of June 2012, its private equity and real estate portfolios delivered a return rate of 35.3 percent and 21.7 percent respectively, compared to its absolute return across all asset classes of just 14.5 percent.
You need to be really careful that you don't pay too much attention to diversifying managers, you really need to choose the best managers
Linbo He, head of private equity, CIC
However, He also stressed that return disparity between venture capital and private equity managers swung as much as 21.2 percent and 13 percent respectively between the best and worst performing GPs, demonstrating the importance of manager selection when investing in private equity. Performance dispersion between fixed income managers was below 3 percent, according to his data.
“You need to be really careful that you don't pay too much attention to diversifying managers, you really need to choose the best managers [in private equity],” he explained.
He also noted that while private equity assets globally reached a high of $3 trillion in 2011, about two-thirds of that remains unrealised.