Asian LPs to ramp up secondaries activity

More than two-thirds of Asia Pacific LPs plan to acquire assets in the secondaries market over the next two years, according to a survey by Coller Capital which took data from 110 private equity investors around the world.

Compared with about 35 percent of European LPs and 30 percent of North American LPs, the study found that 68 percent of Asian LPs plan to be on the buyers’ side in the secondaries market.

In addition, 42 percent of Asian LPs plan to sell assets in the secondaries market in the next two years, as do over one third of North American LPs and one quarter of European LPs. According to the study, these levels represent a new record for secondaries – a similar study in 2008 found only 22 percent of investors had ever sold in secondaries.

When it comes to return commitment in private equity funds, almost nine in 10 survey participants expect to refuse GP re-up requests in the coming year, as investors continue to re-shape their PE portfolio in the wake of the global financial crisis, the study showed.

However, while 59 percent of North American investors cite capital constraints as a likely reason for refusing re-up requests in the coming year, only 18 percent Asia Pacific LPs do the same. Overall, the top three factors to deter investor re-ups in the next 12 months are poor performance of a GP’s last fund, continuity/succession issues, and GP staff turnover.

In fact, limited partners expect about one in five GPs to be unable to raise another fund within the next seven years, according to the study.

For those the remaining GPs, 71 percent of LPs believe sector-specialist funds will become more common in the private equity industry, and 85 percent of investors think GPs will continue to focus on operational improvement at portfolio companies even as investment conditions improve.

While there is little doubt that most of the capital inflow to Asia has been concentrated in the emerging markets in China, India and Southeast Asia, almost a quarter of LPs surveyed plan to increase their exposure to Australasian PE in the next two years, as do 18 percent of LPs to Korean PE.

But LP exposure to Japan is likely to “stagnate or shrink”. 11 percent of investors surveyed said they planned to reduce exposure to the country, while 9 percent said they were planning an increase. More than 40 percent of LPs believed Japan will face challenges from a limited number of established GPs and a weak exit environment in the next three years.