Asian LPs and the US Debt Crisis

There is little doubt that Western institutions will remain big investors in private equity. But fears about the state of the US economy – and the impact this, plus the ongoing effects of the US credit rating downgrade, are having on the public markets – may well affect allocations to GPs. This potentially draws some comparison to the 2008 financial crisis and while there are some similarities, most analysts believe that the situation can be resolved reasonably quickly.

While all that remains to be seen – and fingers crossed that this won’t bring us back to three years ago – GPs should start paying attention to their investors, portfolio companies and exits. The chart below indicates how the high flying Asian private equity market was dragged down by the crisis in 2008 and 2009. While there was a lagged effect for fundraising from 2007 to 2008, exits from IPOs were down 75%. It is, given the current circumstances, unlikely the private equity industry will follow the same path.

Meanwhile, it seems that the Asian sovereign wealth funds have no signs of slowing down. The Government of Singapore Investment Corp. (GIC) and Temasek seems likely to continue their long established relationships with GPs while (relative) newcomers like China Investment Corp. (CIC) and Korea Investment Corp. (KIC) are getting additional capital ($200 billion and $5 billion, respectively). In fact, many sovereign wealth funds are reportedly on a buying spree to take advantage of the current dip in the public markets.
The only possible caveat is that many of these players (as well as a number of larger institutional investors) are seeing the attraction of going direct although mostly alongside GPs they are backing.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• LPs
• GPs
• KIC
• CIC