LPs Should Increase Private Equity Investments In Asia

Investors should continue to grow their private equity investments in Asia as market conditions are better now than the past few years for the asset class, says Altius Associates in its annual survey.

Most investors believe that Asian private equity managers are still struggling to return capital to limited partners (LPs), and cash distributions continue to slow down in the region.

But Altius, which advises and manages US$24 billion in private equity and real assets funds globally, say a select group of Asian private equity managers have distributed more capital in 2013.

Moreover, Asian managers have been able to eke out a better return multiple by an average of 60 basis points (one percentage point is also equal to 100 basis points) in the first half of 2013 compared to a year ago.

Its average realized gross multiple was 2.5 times, according to the Centre for Asia Private Equity Research. Altius expects this trend to continue during the second half of the year.

Because performance is more diversified, LPs in Asia should remain focused on growing their Asian investments, but in a highly selective way with a long-term perspective.

"Manager selection becomes even more critical as the landscape is increasingly bifurcated into the best and non-performing managers, with little grey area in between," says Peter Pfister, head of Asia-Pacific at Altius.

"The current challenge for LPs is to refocus resources and attention on Asian private-equity investing by taking a long-term view, in a market that is asymmetrical, highly heterogeneous and still relatively young,” he adds.

The same cannot be said for the wider emerging markets. While investors have been increasing their allocations over the last 10 years, exits still lag far behind.

Emerging markets have recorded a significantly lower DPI (Distributions to Paid-In) ratio than the U.S. and Europe, says the report.