Asian Private Equity – Will it deliver on its promise? PDF Free Download
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Professor Claudia Zeisberger
Affiliate Professor of Decision Sciences
Academic Director Global Private Equity Initiative (GPEI)
INSEAD
“Asian Private Equity –
Will it deliver on its promise?”
A survey of Top LPs and GPs in Asian Private
Equity
20%
CAGR
Asian PE has been growing strongly…
Source: Preqin, IFSL, APER
… yet so far in line with global industry.
Higher growth ahead?
Source: EMPEA
Do returns justify this sentiment?
LP’s planned changes to their EM PE strategy over next 2 years
Historic returns are middling - yet have been
improving…
Source: Cambridge Associates and MSCI as of 31. Dec. 2009
… (mostly?) driven by strong stock market performance?
Overlay of Asian PE returns with public indices
Illustrative only
Not (!) direct comparison
Net IRR’s to investors
Historic volatility (risk) higher than in developed
market PE
Source: Cambridge Associates as of 31. Dec. 2009
* The higher variability of Asian PE returns becomes even more visible when comparing it to the mean performance of the asset class
…but so is performance of top quartile managers.
Return and variability
is not meaningful
for recent vintages
Volatility (1 standard deviation equals how much return)
Variability of PE manager performance
in Asia in the 8 years prior to 2005 has
been 23% compared to Europe/ US
with 13-15%*
Performance of Top Quartile managers
Top Quartile managers have been
outperforming developed market
counterparts since 2003
Return and variability
is not meaningful
for recent vintages
Has Asian private equity grown into
a viable investment category for
“sophisticated” institutional
investors?
$$
Perspective of sophisticated investor
Average Returns of asset class
Average returns of asset class are “middling”
(but improving)
Historically volatility (risk) is high
Both metrics are probably diluted by short
track record of industry (many newcomer
GPs and LPs)
Performance of Top Quartile managers
Strong returns of Top GPs
How persistent is their performance?
How to identify top managers?
“Sophisticated”
return driven only, rigorous
analysis, resources, experience
and brand name to select and
access top managers
Can sophisticated investors put meaningful amounts of
money into Asian PE and realize acceptable returns?
INSEAD PE survey of top institutional investors, their
portfolios and their experiences with Asian PE.
Investor return expectations are relatively
consistent
Source: Survey
How do actual returns look like ?
0.05
Risk Premium
2.0
Asia Developed
0.65
Risk Premium
2.6
Asia DevelopingWestern PE
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
Expected Gross Return (multiple invested money) of surveyed investors
1.95
All investors expect min 2x gross multiple
returns for their current portfolio…
Source: Survey
…yet actual outcomes likely to be much more dispersed
Expected gross multiple of current LP portfolios
All investors expect their current portfolios
to yield between 2.0-2.3x gross multiple
Average of all investors
2.1x gross multiple
Self evaluation
While bulk of LPs will show gross returns
around 2.0x a significant minority will out/
underperform self set target substantially
Likely gross multiple of current LP portfolios
Average of all
investors 2.0x
gross multiple
Cross check with GP funds performance data
LPs and GPs have different perceptions of return
drivers…
Source: Survey
Composition of returns perceived by LPs
LPs perceive a high return contribution from
multiple expansion for China & India and
from debt for developed Asia
Composition of returns as provided by GPs
GPs emphasize the high operational
performance improvement as the most
dominant factor across all geographies
… and different outlook for the asset class.
Source: Survey
Outlook (5-10y) for Asian PE returns vs. currentGrowth of Asian PE AUM vs. historic 20% CAGR
LPs
GPs
•Better investment opps
•Better Management teams
•Better exit opps
•Better GPs
•Better Macro environment
•Lots of newcomer GPs
with limited experience
•Increased competition
•Asset price bubbles
•Fewer “low hanging
fruits”
Influencing investment decisions by LPs…
Source: Survey
Planned changes in allocation next 12-24months
… and leading to more rigorous “quality control”
Source: Survey
GP’s in portfolio that LPs would currently not re-invest in
•Poor performance/ no exits
•Team issues/ lost key team
members
•Strategy/ style drift
•Too large fund for
opportunity
•Poor governance
Source: Survey
Key topics of recent discussions with LPs as reported by Top GPs
Our Top GPs report different topics of
conversation with their backers
INSEAD’s
GLOBAL PRIVATE
EQUITY INITIATIVE
(GPEI)
www.insead.edu/gpei
Professor Claudia Zeisberger
claudia.zeisberger@insead.edu
APPENDIX
Respondents breakdown
Invested in about
270 Asian PE funds
(this includes a
large number of
duplicates!)
LPs
58 funds
(last 4 generations)
with $34bn AUM
GPs
Composition of LPs by type of institution GPs by strategy
Geographical focus
LPs allocations in $ allocated GPs funds focus in $
LPs surveyed have bulk of investment in
Pan-Asian funds followed by JPN/ Korea,
China and India
GP funds de-emphasize Pan-Asian funds
(still largest group) by design to include
more country focused funds with roughly
equal $ allocated to China, Japan, AUS/ NZ
and India
