Malaysia’s Employees Provident Fund is on the hunt for technology-focused private equity investments, including in Asia, according to a top executive of the $196 billion pension fund.
The emphasis is on later-stage investments rather than venture capital opportunities.
“EPF Private Equity [team] will be looking to invest in tech-focused buyout and growth strategies with experienced fund managers with a superb track record of value creation and successful exits,” Mohamad Nasir Ab Latif, deputy chief executive officer of investment told AsianInvestor last week.
His remarks follow similar comments made by EPF chairman Samsudin Osman, in a statement late last month, that the fund is keen to invest more in private equity and has added a technology mandate to its private equity programme.
No specific allocation has been decided for the technology mandate, Nasir told AsianInvestor, but he said the new tech mandate would be managed by external fund managers.
EPF has previously invested in unlisted technology companies through co-investments, alongside its private equity fund managers through co-investments, he added.
The fund’s private equity allocation currently stands at 2% of its total strategic asset allocation and it plans to raise that above 3% over the next 10 years, EPF said in its September statement, which provided no further details on the scale of that strategic allocation.
While developed markets have been the focus of attention for EPF’s private equity investments, it is open to opportunities in Asia as well.
“65% of EPF’s investments in PE is deployed in developed markets,” Nasir said. “Nevertheless, EPF believes that Asia remains a key focus given the opportunities related to growing Asian economies and an emerging middle-class with higher purchasing power.”
As the largest institutional investor in Malaysia, he said EPF is always on the lookout for sizeable and strategic private equity deals in Malaysia that fit the fund's risk-return profile and can produce strong returns for its 14 million members.
That echoes Osman’s comments that private equity remains the investment route of choice for many investors as they try to tap into the massive growth potential in Asia.
PRIVATE EQUITY HOTBED
The Asia-Pacific region remains the most dynamic area of the global economy, according to the Asian Development Bank's economic outlook published in April.
Despite the medium-term risks as global financial conditions tighten, protectionist policies are implemented, and geopolitical tensions increase, the long-term outlook is brimming with potential due to the growing wealth creation and rising innovation in the region, the report noted.
Forty-nine Asia-focused private equity funds closed in the second quarter of 2018, up 7% from 12 months earlier, according to a quarterly update from alternatives industry data provider Preqin. Some $21.9 billion was raised in that period, up 20% year-on-year.
The report also noted that the number of Asia-focused funds in the market had increased to 985 by June-end from 380 funds nine months earlier. Eight of the 10 largest funds in market are now Asia-focused funds, it added.
An earlier study in March by Bain & Company, the Asia-Pacific Private Equity Report 2018, showed the internet and technology sectors attracted nearly half of all private equity business in Asia in 2017, with more than 450 deals with a median size of $23 million.
With so much money pouring into the region, there are concerns that valuations of potential targets are becoming too high, which could lead to a scarcity of attractive deals, Bain & Company warned.
That chimes with a global report published by Invesco in July, which warned of an increasingly crowded field for investors.
Some of that buying pressure may be easing. Globally, private equity fundraising experienced a slowdown in the second quarter with 230 funds reaching a final close -- 7% less than in the first quarter, according to the Preqin report.
However, that slip in fundraising comes in the wake of an unprecedented flood of money into private equity, with more than $100 billion raised each quarter between the final three-month period of 2016 and the end of 2017.
Meanwhile, the debate over whether private equity actually outperforms public markets continues: recent research that analysed the returns from private equity funds between 2006 and 2015 shows that public markets outperformed private equity over that period.