Private equity deal activity in Asia is expected to rise this year, fuelled by a drive from PE firms to make investments – particularly in Greater China – and anticipation of greater institutional investor capital inflows, according to a survey due to be released today by Ernst & Young.

An overwhelming 74% of PE industry professionals surveyed for E&Y’s report, titled Asia-Pacific private equity outlook 2013, expect an increase in investor allocations to Asia-Pacific private equity.

Large investors into PE funds, including global pensions, university endowments and family offices, are boosting allocations “because of higher growth, improving corporate governance and higher returns”, notes the report, citing the view of a PE investor in Southeast Asia.

Institutions in Greater China are expected to account for the lion’s share of institutional capital to Asian PE this year, according to 74% of respondents, compared with the 47% who believe it will come from North America, and 28% predicting major inflows from Europe.

However, European and North American institutions were seen as raising their investments to Asia PE funds, with one global institutional investor quoted as saying: “The opportunities for them in their domestic markets have shrunk as returns have withered, thus they are increasing their investments where they can make better returns.”

Acquisitions are the biggest goal this year, say 87% of those polled, with deal sizes in 2013 expected to be larger than last year.

The E&Y report surveyed institutional investors (limited partners), PE investors (general partners) and private equity investment bankers, all based in Asia-Pacific.

Despite an expected slowdown in growth on the mainland this year, Greater China is expected to see the most PE deal activity in 2013, according to 74% of respondents, followed by Southeast Asia (16%), India, Australia and Japan (4% each), and South Korea (2%).

China is a priority for global PE firms, while Chinese private equity shops are seen as leading deal activity not only in Asia, but globally, according to one investment banker polled.

Indonesia, last year’s private equity hotspot, remains of interest, although high expectations have been tempered slightly by a slower pace of deal flow than anticipated. Since 2011, Indonesia has seen 13 PE deals collectively worth $900 million, according to Mergermarket data.

“Everybody was talking about [Indonesia] 18 months ago,” says Michael Buxton, Asia-Pacific private equity leader at E&Y. “People still talk about it, but not in the same way. It’s a little more balanced.”

But the opportunities and fundamentals in Indonesia remain unchanged, namely its large population, growing middle class and ample natural resources, Buxton tells AsianInvestor.

Of survey respondents seeking investment-related opportunities in Southeast Asia, Singapore was cited by 63%, followed by Indonesia (36%), Malaysia (22%), Thailand and Vietnam (13%) and the Philippines (5%).   

Myanmar may be the sleeping giant in Southeast Asia, as signalled by a visit to the country last May by TPG co-founder David Bonderman. Reportedly he was there to get a sense of investment opportunities and the regulatory framework.

“Everybody we know, not just in PE, is looking at Myanmar,” says Buxton. “The resources are immense, and it’s got a big population. There’s a huge opportunity there.”