Asian investors among biggest allocators to PE

Asian investors are expected to represent a significant source of investment to private equity funds this year, with a preference for allocating within the region, a new Preqin study indicates.

A total of $327 billion was raised by 761 PE funds which held a close last year, up from the $312 billion raised in 2011 by 911 funds, according to the data provider’s survey of private equity limited partners (LPs).

More money was placed with fewer managers, underlining the intense competition for investor capital among PE funds. 

The most active investors were in Asia and ‘rest of world’ – defined as being outside of Europe and North America – with 67% of LPs having made new fund commitments in 2012. It compares with LPs in US (58%) and Europe (56%) who made allocations last year.

Investors outside of the West “now represent a significant source of capital to fund managers”, notes Preqin, as regulations in the US and Europe impact banks and insurance firms by restricting their investments in private equity, notes Preqin. 

The Volcker Rule in the US precludes banks from making large investments in PE funds, while the EU’s Solvency II framework will have a similar effect on insurance firms.

Looking ahead to this year, the regulatory impact is being closely watched by secondary private equity firms, which anticipate that banks and insurers will seek to sell their PE limited partner stakes in the secondaries market.

In addition to being a significant source of PE allocations, Asia represents the most attractive region for PE investments this year, as cited by 49% of investors.

The second most popular market is China, which is favoured by 31% LPs. However, it represents a drop from the 51% who ranked it best in 2009, with investors concerned about slowing growth rates in the region.

The biggest inflows to Asian PE will come from investors within the region, with 68% saying they plan to invest in their home market.

The so-called home-bias trend is similarly seen among investors in Europe and the US, who likewise prefer to allocate close to home despite domestic economic woes.

A UK public pension notes: “Due to the long-term nature of the asset class, the current climate [in Europe] is not necessarily a good indicator of the potential worth of an investment.”