LPs to target Southeast Asia, Korea

LPs are warming to Indonesia, Malaysia and Korea, according to a Coller Capital survey, but China remains Asia's top investment destination.

Private equity LPs plan to increase their exposure to Indonesia, Malaysia and Korea over the next three years, according to a report by Coller Capital that surveyed 140 LPs globally. 

Only 25 percent of respondents currently invest in Malaysia – a number expected to rise to about 40 percent within three years, the report said. About 45 percent of LPs expect to be invested in Indonesia in three years, while just under 35 percent have exposure to the country now. 

“For the next three years, LPs are looking broader at the pan-Asian region, and in particular to Indonesia and Malaysia. This is going to have more of a focus going forward than the more established markets like China, India, Australia or Japan,” Stephen Ziff, a partner at Coller Capital, told Private Equity International

Southeast Asia has been attracting a large amount of capital from investors as GPs ramp up their capabilities in the high-growth region.

Investments in Indonesia, in particular, have demonstrated they can produce high return exits. TPG and Northstar Pacific Partners, for example, sold 24 percent of Indonesian commercial bank Bank Tabungan Pensiunan Nasional (BTPN) in May to Japanese Sumitomo Mitsui Bank, PEI reported earlier. The parties also have an acquisition pending approval from Indonesian regulatory authorities for another 15.74 percent of BTPN to make a total stake of 40 percent. The combined deals are worth $1.52 billion and represent a 7x return. 

LPs plan the biggest
increase in capital
commitments in Asia to
Malaysia and Indonesia,
according to a survey
by Coller Capital

Similarly, CVC Asia Pacific expects to gain between 7x-8x once it has fully exited Indonesian department store chain Matahari, according to a source close to the firm. CVC sold down a 40 percent stake in a $1.3 billion deal in March.

Malaysia has also provided exits for private equity firms. Last year, The Abraaj Group exited Malaysian hospital operator IHH Healthcare through a dual IPO on Bursa Malaysia and the Singapore Stock Exchange, raising about $2 billion and making it one of the largest IPOs globally in 2012.

The LP survey also revealed that China, India and Australia remain the region's top three investment destinations, respectively. Respondents said they would maintain their current commitments to these markets over the next three years.

The survey also showed that the number of global LPs that have commitments to China via funds with a wider Asian focus (65 percent) almost matches those invested in the PRC through country funds (62 percent).

In a global context, other results showed that 50 percent of LP respondents said they have or would consider investing in private debt funds, according to Coller. In comparison, only one-third of LPs have exposure to funds of funds or venture capital vehicles. The number of private debt funds globally has grown to over 100 by 2012, compared to just 10 in 2009.