Perspectives 2018 Asia-Pacific: Looking west

Western political instability is one of the top worries for Asia-Pacific investors, writes Sam McMurray.

After extreme market valuations, the second biggest macroeconomic concern for Asia-Pacific investors over the coming 12 months is western political instability, according to our PEI LP Perspectives Survey 2018. Another key concern, the impact of the UK’s exit from the European Union, is also more of a worry for Asia-Pacific LPs compared with the global average. This hasn’t dampened investor appetite for these regions: 69 percent of Asia-Pacific LPs see North America as an investable region over the next 12 months; 62 percent said the same about Western Europe.

We are seeing anecdotal evidence of increased appetite among Asian LPs for exposure to their domestic private equity markets. In India, for example, “more domestic capital is being mobilised into private equity funds”, Nupur Garg, regional lead for South Asia, Private Equity & Venture Capital Funds at the International Finance Coporation told PEI.

“There are a lot of domestic financial institutions that have large programmes backing funds.”

Meanwhile recent data from the Australian Private Equity and Venture Capital Association show that domestic investors, in particular the country’s super funds, are re-emerging as a prominent component of the Australian private equity fundraising landscape.

“Over the past three years we’ve seen a steady increase in overseas funding and now it’s a welcome change to see the re-emergence of domestic funding sources,” Yasser El-Ansary, AVCAL chief executive said in the report.

Nearly one in three Asia-Pacific LPs – 30 percent – reported that private equity returns outperformed their internal benchmarks, which compares favourably with private debt and infrastructure returns, where 13 percent and 20 percent outperformed respectively. No respondents saw their private equity portfolios fall short of expectations over the past 12 months, compared with a global average of 16 percent.  A total of 38 percent of Asia-Pacific LPs surveyed were under allocated to private equity, in line with the global figure of 40 percent.

There was an even split over how easy it was to source investment opportunities: 18 percent of respondents found it easier to access opportunities; the same proportion found it harder. The latter figure compares favourably with the global average, where 31 percent of respondents found it difficult to source suitable investments.

LPs in the region are more likely than their Western European counterparts to source opportunities via an investment consultant: 14 percent said it was the primary route to fund introductions. Asia-Pacific investors also view conferences and events as a more active avenue than North American and European LPs.

Only 11 percent of LPs in the region have a defined allocation to private equity secondaries over the next 12 months. But Asia-Pacific LPs are more likely to have a defined allocation to co-investment opportunities (27 percent) and direct opportunities (18 percent) than their global counterparts.