Has Asian PE lost its mojo?

The consensus was that geographies with more developed capital markets - where control transactions are more readily available - have delivered the best returns.

Fundraising figures for 2013 suggest these concerns have gathered momentum. According to preliminary data from AVCJ Research, Asia-focused funds received commitments of around $41 billion - for final and incremental closes - down from $54.2 billion in 2012. It is the smallest annual total since 2009.

Last week Preqin published data for PE globally, which showed that funds reaching a final close during 2013 received $431 billion in 2013. It is the largest annual total since the height of the boom market in 2008 and Western markets are largely responsible. Commitments to North American funds were up 33% to $266 billion; commitments to funds outside of North America and Europe dropped 29% to $61 billion.

This notion of comparatively weaker investor sentiment is confirmed in the most recent edition of Coller Capital's Global Private Equity Barometer, released in December.

More than 80% of respondents are targeting annual net returns of at least 11% from their PE portfolios over the next 3-5 years, with one quarter anticipating returns of 16% or more. They are more bullish on buyouts in North America and Europe than Asia Pacific. Asia Pacific VCs are expected to outperform its European counterparts but they still trail North America.

All this doesn't necessarily mean LPs are losing their appetite for Asian exposure. The discussion at the AVCJ Forum focused on whether the region deserved more than a 10% allocation, not less; and then many institutional investors are underweight on Asia and looking to ramp up commitments. China and India may have lost some of their shine, but an LP might still be interested in a pan-regional vehicle that invests in other markets as well.

The Asia fundraising figures also warrant a second look. Discount China-focused vehicles and the annual totals since 2010, though still a fraction of the 2007-2008 numbers, have been fairly consistent, ranging from $23.3 billion to $26.7 billion. Indeed, approximately 40% of the capital raised in each of 2010, 2011 and 2012 was for renminbi-denominated funds, which have an almost wholly domestic investor base.

If Western institutional investors are not turning their backs on Asia, they are certainly eyeing it with more caution. One might argue that the early- to mid-2000s performance of regional funds created expectations among LPs that were never likely to be realized. This was the period when China and India were still relatively untapped, of low entry valuations and high public market exit multiples.

In Cambridge Associates' analysis of fund performance by total value to paid-in ratios, emerging markets - largely driven by Asia - lead the US and Europe every year from 2001 to 2006, with the exception of 2004. Return multiples for 2001-2003 are in excess of 2x. From 2007 to 2012, emerging markets are pushed back into second or third place. And what of 2014? Stronger returns from Asian GPs - or, in certain cases, just some returns - would help, and maybe rejuvenated IPO markets will deliver.

The investors polled by Coller Capital are more positive on buyouts in North America and Europe than Asia, but more than half of those who expect Asia to generate positive annual net returns in the next 3-5 years are anticipating a figure in excess of 15% - a larger portion than for other regions. So the faith remains, for now.

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• Topics
• Investments
• LPs
• GPs
• Fundraising
• Fundraising
• GPs
• LPs
• Asia
• China
• India