Asia edges developed markets on PE performance - study

Between 2004 and 2018, Asia trailed developed markets by an average annual spread of 60 basis points. However, since 2013 it has held the edge, bettering developed markets by 50-65 basis points in each of 2016 and 2018, when IRRs hit 20.5% and 20.7%, respectively. The only substantial reverse during this period came in 2015 when developed markets delivered 17.2% to Asia's 15.7%.

"You've seen a pick-up in performance and then the market has grown three times over [during this period]," says Juan Delgado-Moreira, vice chairman at Hamilton Lane. "If you look at the pie chart of what the market is like today versus what it was before, the biggest changes are more buyouts and more growth investing. Both categories have grown, and they have driven returns. Buyouts are 35% of the market today, up from 16% in 2007."

In the mid to late-2000s, distributions to paid-in (DPI) from developed markets were consistently in excess of 1.2x, while Asia hovered around 0.8x. Since 2012, it has become much closer, with Asia coming out on top in 2012 and 2015. Once again, the increasing share of buyouts in Asian private equity has been a key factor. Isolating buyout deals, Hamilton Lane found that distributions have been much the same in Asia and developed markets from 2004 onwards.

The performance of Asian private markets also compares favorably to public markets. The only asset class to deliver better risk-adjusted performance on a 10-year basis is US equities, and even then, the Sharpe ratio for Asian private markets – the difference between the return on an investment and the risk-free return – is superior.

On a year-by-year basis, the Asia private markets IRR has consistently exceeded the MSCI Asia Pacific and MSCI World public market equivalents (PME) since 2011. Between 2004 and 2018, top-quartile managers only failed to beat the PMEs in 2008.

"You don't need to be top quartile to have good exposure to Asia performance relative to public equities. A lot of US plans ask whether Asian private equity can do better than Asian public equities – and the answer is it certainly can. Historically it has demonstrated consistent outperformance, often by a margin. And not only the top quartile," says Delgado-Moreira.

Hamilton Lane also offers evidence of what appears to be a rich seam of liquidity in Asia. For the past decade, the trend in private markets globally is for longer holding periods. As it stands, 60% of exited buyout deals have been held for more than five years, double the 2003 level. The pattern in Asia is far more volatile. A spike in 2003 was followed by another in 2009 and a third last year. In 2018, about half of all buyout exits came within five years compared to 20% in 2017.

Delgado-Moreira accepts this could be a result of smaller sample sizes, but he sees some logic behind these data. The spurt in 2009 followed a pivot to Asia by investors who were attracted by China's relative stability. More recently, they have turned to Asia once again, looking to buy growth as an antidote to rising valuations in North America. "There's a trade-off where growth is seen as the winning strategy of the last decade," he adds.

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• Topics
• Performance
• GPs
• Asia
• Hamilton Lane