Asian private equity funds to see a rise in allocations

Dec 7, 2011

Investors from the US and Greater China will contribute the bulk of capital inflows to Asian PE funds, finds Ernst & Young in its first Asia-Pacific private equity survey.

Asian private equity funds to see a rise in allocations

Asian private equity funds are expected to see a rise in allocations next year, with the bulk of capital coming largely from investors in Greater China and North America, according to a new survey by Ernst & Young.

“[Investors] are buying into a big growth story,” says Michael Buxton, private equity leader, Asia-Pacific, at E&Y. “If you look at Europe and the US at the moment, the economies are hardly exciting.”

As many as 62% of the Asian institutional investor respondents in E&Y’s report, titled Asia-Pacific private equity outlook, expected to invest in funds targeting a specific country or sub-region within Asia. Vehicles covering overall Asia-Pacific are preferred by 29%, with only 16% choosing global investment funds.

A narrowed geographic outlook within Asia provided investors with better access to more difficult-to-access markets such as China, according to the survey of 50 private equity investors (general partners), 30 institutional investors (limited partners) and 20 private equity investment bankers, all based in the region. It is the first Asia-focused private equity survey by E&Y, according to Buxton.

China was cited by survey participants as both an opportunistic source of buyout deals and a vital future base in the region for private equity firms, which Buxton attributes to the overall strength of the market’s economy.

Mainland China is viewed as a future private equity powerhouse by 59% of respondents, “indicating that a major global private equity firm will come from China during the coming years”, according to the report. India was viewed as a future force by 23%, with Indonesia coming in a distant third with only 6%.

Greater China is also anticipated to have the region’s strongest deal activity, as indicated by 60% of respondents, far ahead of India (14%) and Southeast Asia (12%). Conversely, the markets seen as having the least activity in the coming year are Japan (32%) and South Korea (31%).

“As an investment thesis, China is extremely exciting,” says Buxton. “[There] you see the incredible growth of businesses which are becoming, in many cases, market leaders very quickly.”