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Private Equity in Asia

Private Equity in Asia

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Published by: http://besthedgefund.blogspot.com on Dec 04, 2010
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 © 2010 Preqin Ltd. / www.preqin.comPreqin provides information, products and servicesto private equity
rms, fund of funds, investors,placement agents, law
rms, advisors and otherprofessionals across the following main areas:> Fund Performance> Fundraising> Fund Manager Pro
les> Investor Pro
les> Fund Terms> Compensation and Employment> Buyout DealsAvailable as:> Hard Copy Publications> Online Database Services> Consultancy and Research Support> Tailored Data DownloadsFor more information and to register for a demo,please visit:
www.preqin.com/privateequity
Preqin Research Report
 
 The Rise of Asian Private EquityNovember 2010
Unprecedented Growth
The period 2003 – 2008 saw unprecedented growth withinthe Asian private equity industry. Fig. 1 shows the increasein total capital raised annually by funds focusing on theregion between the period 2003 and 2008, when a record$91bn was raised by 194 funds achieving a
nal close.As Fig. 2 shows, the record level of capital raised saw theimportance of the Asian private equity industry growing ona global scale, with Asian fundraising accounting for an alltime high of 14% of all funds raised worldwide in 2008 – upfrom just 5% in 2003. However, the effects of the global economic downturn werefelt especially hard in Asia, with fundraising declining toa
ve-year low. While other regions also saw a dramaticdecline in fundraising, none were hit harder than Asia, withthe region seeing its share of the global market declinebelow 10% in terms of total capital raised for the
rst timesince 2004.
The Changing Dynamic
Such dif
culties in the fundraising market may come assomewhat of a surprise – especially considering the relativeresilience of Asia-focused private equity funds in terms ofperformance. As Fig. 3 shows, following an extended periodof strong median fund performance since the turn of themillennium, vehicles focusing on Asia have clearly weatheredthe storm with more success than their European and UScounterparts, with median IRRs for all vintage years stillposting positive results while funds focusing primarily on theWest are still in the red.The main factors behind the decline in Asia fundraising canbe identi
ed by examining the make-up of fund managersand investors in the region more closely. As Fig. 4 shows, interms of capital, the majority of funds raised up to 2008 forinvestment in Asia were being committed to foreign managers(i.e. headquartered outside of Asia) rather than those basedin the region. Consequently, these managers were relyingfar more on investors situated in the West than domesticmanagers.With many investors in Europe and North America
ndingthemselves over-committed to private equity, gatheringcommitments for new funds became a challenging prospect,compounded by the fact that investors were far morereluctant to make commitments to a long-term asset classduring a period of such uncertainty. For many of those with
Fig. 1: Asia-Focused Private Equity Fundraising, 2003 - 2010 YTD
4086127181223194107605133665819128230501001502002502003 2004 2005 2006 2007 2008 2009 2010No. FundsRaisedAggregateCapital Raised
Source:
Preqin 
Fig. 3 Comparison of Private Equity Performance by Fund PrimaryRegional Focus for Funds of Vintage Years 1995 - 2007
-0.1-0.0500.050.10.150.20.251995 1997 1999 2001 2003 2005 2007EuropeAsia and Restof WorldUS
Source:
Preqin 
Fig. 2: Asia Private Equity Share of Global Market
4.6%6.4%10.3%12.1%12.4%13.7%9.6%11.6%20.7%0%5%10%15%20%25%2003 2004 2005 2006 2007 2008 2009 2010 Raising
Source:
Preqin 
   A  s   i  a   F  u  n   d  r  a   i  s   i  n  g  a  s  a   %   o   f   G   l  o   b  a   l   T  o   t  a   l   M  e   d   i  a  n   N  e   t  -   t  o  -   L   P   I   R   R
Vintage Year
 
 
 © 2010 Preqin Ltd. / www.preqin.comPreqin provides information, products and servicesto private equity
rms, fund of funds, investors,placement agents, law
rms, advisors and otherprofessionals across the following main areas:> Fund Performance> Fundraising> Fund Manager Pro
les> Investor Pro
les> Fund Terms> Compensation and Employment> Buyout DealsAvailable as:> Hard Copy Publications> Online Database Services> Consultancy and Research Support> Tailored Data DownloadsFor more information and to register for a demo,please visit:
www.preqin.com/privateequity
limited cash available, investments closer to home were theonly ones maintained during 2009.The result has been an increase in the proportion of fundsbeing raised by
rms headquartered in Asia, which are morereliant upon gathering commitments from local investorsthan their international counterparts. The proportion ofcapital raised in the region from domestic managers rosefrom less than 40% in 2008 to nearly 60% in 2009. Thistrend looks set to continue in the longer term, with domesticmanagers accounting for 60% of all funds currently on theroad.
Institutional Investor Enthusiasm Rising across theWorld
While the global economic crisis brought about a hiatusin the Asian industry’s growth story, the resilience ofAsian funds and impressive development seen in Asianeconomies has once again attracted the attentions of manyEuropean and American investors in private equity. In arecent survey of institutional investors in private equity, 56%named Asia as an area presenting the best opportunities forinvestment in the current climate.Numerous investors have recently shown increasedattention towards Asia, including Stapi Lifeyrissjodur. TheIcelandic pension fund recently began investing in Asia andanticipates its exposure to the region will increase in thecoming years. Commitments are anticipated to be made topan-Asian funds rather than country-speci
c funds withinAsia.Another European investor with an interest in Asia is theUK-based London Borough of Islington Pension Fund,which is hoping to gain exposure to Asia through its futurecommitments to funds of funds. Funds of funds representa growth story in their own right, with
rms such as Beijing-based Diligence Capital and Tokyo-based Brightrust PEJapan launching new vehicles in recent times aimed at bothdomestic and international investors alike.Within Asia itself there has also been increasing enthusiasmfor private equity, with a growing institutional investor baseseeking out more balanced and sophisticated investmentportfolios. While investors such as the Government ofSingapore Investment Corporation and NLI International, aJapanese insurance company, are long-time supporters ofthe asset class, more recently we have seen new entrantssuch as National Social Security Fund - China and HongKong Monetary Authority Investment Portfolio entering theprivate equity arena for the
rst time.
Fund Managers React
The response to the increased enthusiasm from fundmanagers has been signi
cant. In total there are 329 fundson the road focusing on Asia, seeking a total of $117bn in
Fig. 4: Split of Asia-Focused Fundraising by Domestic vs ForeignHeadquartered Managers
32.6%44.8%41.6%38.6%59.5%51.4%60.2%67.4%55.2%58.4%61.4%40.5%48.6%39.8%0%10%20%30%40%50%60%70%80%90%100%2005 2006 2007 2008 2009 2010 RaisingForeignDomestic
Fig. 5: Split of Funds Currently on the Road by Type
7335866027204101421.821.5 21.520.613.56.83.2 3.15.30102030405060708090100Expansion /GrowthBuyout Venture RealEstate Infrastructure Fund of Funds Balanced DistressedPE OtherNo.Funds RaisingAggregateCapitalSought($bn)
Like this report?
You can sign up to receive Hedge Fund Investor Spotlight,Preqin’s monthly newsletter containing the latest research onhedge fund investors.
Visit: www.preqin.com/spotlightEmail: info@preqin.com
London: +44 (0)20 7645 8888New York: +1 212 808 3008Singapore: +65 6408 0122
 
 © 2010 Preqin Ltd. / www.preqin.comPreqin provides information, products and servicesto private equity
rms, fund of funds, investors,placement agents, law
rms, advisors and otherprofessionals across the following main areas:> Fund Performance> Fundraising> Fund Manager Pro
les> Investor Pro
les> Fund Terms> Compensation and Employment> Buyout DealsAvailable as:> Hard Copy Publications> Online Database Services> Consultancy and Research Support> Tailored Data DownloadsFor more information and to register for a demo,please visit:
www.preqin.com/privateequity
Fig. 6: Split of Funds Currently on the Road by Fund ManagerHeadquarters
364044552315112219920.720.316.011.08.37.37.05.85.32.90102030405060
   H  o  n  g   K  o  n  g   C   h   i  n  a   U   S   I  n   d   i  a   U   K   U  n   i   t  e   d   A  r  a   b   E  m   i  r  a   t  e  s   A  u  s   t  r  a   l   i  a   S   i  n  g  a  p  o  r  e   J  a  p  a  n   S  o  u   t   h   K  o  r  e  a
No. Funds RaisingAggregate Capital Sought($bn)
aggregate commitments. This
gure accounts for over 20%of all funds being raised worldwide, a record level whichpoints towards a signi
cant future increase in the proportionof global private equity money focusing on Asia.
Where Is the Money Going?
As Fig. 5 shows,
rms raising growth capital funds areseeking to raise the most capital of all fund types currentlyon the road, with 73 growth funds seeking a total of $21.8bn.This is one area of the market which is very characteristic toAsia, with the number and value of growth capital funds inEurope and the US being far lower as a proportion of totalfundraising. The buyout, venture and real estate sectors arealso all seeking over $20bn with new funds currently on theroad. As Fig. 6 reveals, in terms of manager headquarters, HongKong-based
rms are leading the
eld in terms of capitalbeing sought for new funds on the road. Hong Kong isfollowed closely by China, which represents a leadingcentre for new capital being raised for the region, with manyof the funds being raised by managers headquarteredin Hong Kong, Singapore, the US, the UK, the UAE andelsewhere focusing either entirely or to a signi
cant extenton opportunities in the region. India is also a leading regionwithin Asia for private equity investment, while there arealso signi
cant new markets emerging in countries such asVietnam, which has six home-grown funds currently on theroad seeking just over $1bn in aggregate commitments.
Long-Term Outlook
As the abundance of new funds on the road shows, growthwithin the private equity industry in Asia is already underway.With increasing numbers of both domestic and inter-regionalinvestors seeking to increase their exposure to Asia, it islikely that many of these new vehicles will be successful inachieving their targets, and will go on to invest billions ofdollars in Asian companies.Unlike with previous periods of industry growth, the recentrise in activity is being driven primarily by an increase inthe number and stature of domestic
rms, with many newprivate equity houses starting up, and existing domesticplayers raising larger vehicles.In order to capture all of these important new developments,we are very excited to announce the launch of our
rstAsian of
ce, in Singapore. We are con
dent that this movewill enable us to better capture all the activity in the region,and better serve our clients in Asia and all other regionsworldwide.
The Preqin BlogWe regularly post unique content and analysis on varioustopics in the alternative assets industry. Subscribe to theRSS feed or bookmark the page to be kept up to date on allthe latest topics and trends.
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