Global LPs favour Asia

A recent survey of LPs finds that while down on private equity generally, they remain up on Asia.

Coller Capital’s latest Global Private Equity Barometer has registered the most pessimistic LP outlook on the asset class since it began the series of twice-yearly surveys in 2004.

The London-headquartered secondaries specialist found that 74 percent of the 120 LPs it surveyed around the world expect distributions from their portfolios to deteriorate over the next year, regardless of the regional focus of the fund. A fifth of LPs plan to reduce their target allocation to private equity in the next year and respondents expect to see, on average, a tenth of LPs default on their commitments in the coming two years (although Asia Pacific-based respondents predicted only a 7 percent default rate).

Likewise, 84 percent of LPs reported having refused to re-up with one of more of their existing GPs in the last 12 months. Asked to predict the future for the GP community, LPs predicted an average of 28 percent of venture capital firms and 23 percent of buyout firms would fail to raise a fund in the next seven years.

However, amidst the general gloom, there was some relief for Asia-focused GPs. While 31 percent of LPs plan to decrease their total number of “active GP relationships” in the next two years, only 11 percent plan to decrease their GP relationships in the Asia Pacific region.

“This reflects a more optimistic view on Asian private equity generally – a view that developing Asia is growing faster than other markets and will also recover more quickly than developed markets,” said Alex Lee, a principal based in Coller Capital’s Singapore office.

It also implies the denominator effect – which some feared would see US and European institutional investors retrenching to home markets, thus draining capital from Asian private equity – is perhaps not to be so feared after all.

Lee commented: “There are two ways to deal with [the denominator effect]. One is to say, ‘well I don’t understand Asia, I’ve only just gone into it – I want to get out of it’. The other approach, which is more common, is to say, ‘I’ve just gone into Asia, I think in the long run it’s going to give me good returns, it’s a faster growing market’. If you take that approach you can either reduce your commitments to other regions or increase your overall target allocation to private equity.”