Study: Asia PE returns improving

Despite waning investor sentiment for the region, Asia's GPs are posting the strongest ever 10-year returns, according to a study from Capital Dynamics.

Funds in Asia Pacific are showing a 10-year net IRR of 12.7 percent  – the highest-ever recorded 10-year pooled return figure in the region, according to Cambridge Associates data cited in a recent report by Capital Dynamics. 

The IRR figure is for the 10-year period ending 31 March 2013.

In comparison, for the 10-year periods concluding at the end of 2012 and 2011, Asia Pacific funds returned a net IRR of 12 percent and 11 percent respectively.

Net returns of top-quartile funds in the region have stablised at 20 percent after rising rose to 22.7 percent in 2007 from 10.8 percent in 2003, according to Preqin data also referenced in the report. 

“Asia Pacific PE is playing an increasingly important role as top-quality private equity firms continuously improve and institutionalise, indicated by the rise in net IRRs of top-quartile funds,” CapDyn said in a statement. 

Asia Pacific PE is playing an increasingly important role as top-quality private equity firms continuously improve and institutionalise, indicated by the rise in net IRRs of top-quartile funds.

Capital Dynamics

The report also showed that Asia Pacific represented 21 percent of private equity investment during 2012, while the US and Europe attracted 54 percent and 23 percent respectively.

Indicating continued interest in Asia’s largest market, China attracted 47 percent of the private equity investment value in Asia Pacific last year, more than any other country in the region including developed markets. The figure is substantially higher than the 5 percent of private equity investment represented by China in 2005. 

The region’s developed markets of Australia, Korea and Japan followed behind in 2012, with 15 percent, 13 percent and 11 percent of regional investment by private equity going into these countries respectively. 

Despite the data that suggests the highest 10-year returns ever, some investors are losing confidence in the Asia Pacific region as a whole. Fundraising during the first half of 2013 declined 20 percent year-on-year to $20 billion, according to Capital Dynamics, most notably due to the drop-off in RMB fundraising in China.

As China’s GDP growth continues to slow, recording a GDP growth rate of 7.5 percent year-over-year for Q2 2013 and a full-year target of 7.5 percent, according to Capital Dynamics, the business model of capacity expansion and market coverage expansion is no longer realistic, putting strain on private equity firms to generate the same historical returns, the study said.