Report: Australasia, Korea to Enjoy Gains in Private Equity Investment

(June 20, 2011) — New research by Coller Capital has shown that over the next two years, investors in private equity funds  plan to heighten their exposures to Australasia and South Korea.

According to the firm’s latest Global Private Equity Barometer, while almost a quarter of limited partners, or institutional investors in private equity funds, planned to up their exposure to Australia and New Zealand private equity, 18% aimed to do the same in South Korea.

On the other hand, limited partners’ exposure to Japan was expected to decrease. A total of 11% of respondents revealed that they plan to lower their exposure to the country, while 9% are planning to increase their exposure.

“Investor plans for secondaries sales show the scale of the change coming to the private equity landscape,” commented Jeremy Coller, CIO of Coller Capital, in a statement. “Compare the situation today with three years ago. One third of North American LPs plans to sell assets in the next 24 months. Whereas, in the summer of 2008, only one fifth of investors had ever sold. When you also look at the proportion of investors looking to buy secondaries; the flood of money targeting new private equity markets; and the accelerating pace of recruitment within LP institutions, it’s clear we are working in a rapidly-evolving industry.”

The report continued: “In the wake of the financial crisis, investors (LPs) are driving rapid change in the private equity industry, including a wide-ranging re-balancing of their portfolios and the recruitment of more in-house staff, according to Coller Capital’s latest Global Private Equity Barometer.”

Following the financial crisis, the majority (54%) of investors now believe private equity is more correlated with public equities than they once were. Meanwhile, the industry’s secondary market, which gives investors the flexibility to sell out of the traditionally illiquid asset class, is growing at a fast pace. The research showed that more than a third of US and Canadian investors are planning to sell private equity assets in the next two years, while just three years ago only a fifth had ever sold holdings. Furthermore, the research found almost half (47%) of public pension funds expect to hire additional private equity staff over the next two years, with 14% of corporate pension funds doing the same.

Recent research from Preqin showed that Asia has attracted sufficiently more capital from the 10 largest private equity firms over the past three years at the expense of North America-focused investment. “We’ve seen a change from the 2006/2007 boom era when North American investments were the prime focus for the major private equity firms, but since the 2008 financial crisis, we’ve seen private equity firms looking to new markets for better returns,” Manuel Carvalho, Preqin’s manager of private equity deals, told aiCIO following the May study. “Institutional investors need to care where capital is going, and they should keep a close eye on investments by region.”