Study: Global PE firms eye Asian investors

GPs expect increasing amounts of capital to be available from Asian investors and LP interest in co-investments is rising globally, according to a trend report from Grant Thornton.

The Asia Pacific region will be the most significant source of new capital for the private equity industry over the next two to three years, according to a recent report by research firm Grant Thornton surveying 156 senior executives from private equity firms across the globe. 

Of the respondents, 37 percent said the most new capital coming into private equity would come from Asia, followed by the US (20 percent) and the Middle East and Africa (19 percent). 

However, Asian LPs are looking for large ticket investments, excluding them from investing in many mid-market vehicles, according to Grant Thornton. 

“Some of the new pools of capital that are looking for homes are so big that, frankly, they can’t access the mid-market or the lower mid-market. If they are trying to write things where there is a minimum cheque size of $200 million or $250 million, that’s a $2.5 billion fund by default,” one UK-based respondent said. 

Some of the new pools of capital that are looking for homes are so big that, frankly, they can’t access the mid-market or the lower mid-market. If they are trying to write things where there is a minimum cheque size of $200 million or $250 million.

UK-based GP

GPs are also facing challenges from increasing demands by LPs globally, particularly for more co-investment opportunities. 

Sixty percent of GPs say offering co-investment opportunities are significant in getting LPs to commit, with 35 percent planning to include offering co-investments as part of their strategy for their next funds, the report said. 

“Every single investor you meet talks at length about co-investment opportunities. It’s one of the first things that rolls off their tongues in fundraising meetings in terms of what they are looking for,” one survey respondent commented.

Australia-based private equity firm Pacific Equity Partners is an example of one GP responding to calls from LPs for such opportunities. The firm is gearing up to launch a A$2 billion (€1.4 billion; $1.9 billion) vehicle that will have a A$1 billion co-investment tranche alongside it that is structured on a discretionary basis, Private Equity International reported earlier. 

However, GPs maintain scepticism about LPs’ abilities to follow through or move quickly on deals, the report added. 

Moreover, LP pressure has been stronger in relation to distributions and exits, with 23 percent of respondents saying this is what LPs are most concerned with – more than any other issue.

Every single investor you meet talks at length about co-investment opportunities. It’s one of the first things that rolls off their tongues in fundraising meetings in terms of what they are looking for

Survey respondent

Firms have also been responding to this, particularly as debt markets in the US have been buoyant, offering attractive refinancing packages, industry sources say. 

For example, UK-headquartered private equity firm Permira recapitalised Red & Black, the investment holding company for Hugo Boss, in October, returning 47 percent of initial costs of its investment in the luxury fashion retailer, PEI reported earlier.

The recapitalisation of Red & Black comes as Permira is raising its fifth fund. In April, Permira V, which is targeting €4 billion to €5 billion, held its first close on €2.2 billion.