Survey: Asian LPs most dissatisfied with private equity

Asian LPs are the least optimistic on economic recovery and the least satisfied with their private equity investments, show the results of Coller Capital’s Global Private Equity Barometer Winter 2009/10.

The survey, which asked 108 LPs from around the world for their views on private equity, found around some 77 percent of Asia-Pacific LPs interviewed were disappointed with the recent performance of their private equity portfolios, compared to around 58 percent in Europe and only 40 percent in the US.

Likewise, Asia-Pacific LPs were the least optimistic on the outlook for economic recovery and anticipation of an increase in capital calls in 2010. One third of Asian LPs believed the economy would not return to steady growth until 2012, while three quarters of US and European LPs expect to this happen by the first half of 2011. Only 57 percent of Asian LPs expect a major uptick in capital calls in 2010, compared to 75 percent of Europeans and 87 percent of US LPs.

“Asian LPs came into the asset class much later than LPs in Europe or the US,” Hiro Mizuno, partner and Asia head at Coller Capital, told PEI Asia. “Many started in private equity in 2000, so we hit the credit crisis just before they started enjoying private equity returns. Because of this, Asian investors haven’t had much of a cushion internally and it’s hit them more, unlike US and European LPs which have had good experiences in the past.”

He added: “What the barometer is saying is that Asian LPs seem to be struggling to continue to be aggressive in private equity.”

Although the survey results show Asian LPs to be the most bearish on private equity, Mizuno believes they show confidence in the asset class within investing institutions globally has deteriorated.

Previous Coller LP surveys have recorded positive problems in relation to the asset class, he says, like concern over whether in-house investment staff has enough relevant experience to manage private equity investments. However, now the problems recorded indicate investors are having to convince their wider organisation they should remain invested in private equity.

This is reflected in the section of the Coller survey which asked LPs which out of a list of 11 suggested factors would be likely to deter re-ups in the next 12 months. Those picked out by more than 70 percent of respondents include: poor performance of GP’s last fund; terms and conditions; continuity and succession issues; poor reporting and transparency; conflicts of interest; and GP staff turnover. This is in stark contrast to the Winter 2008/09 barometer in which poor performance of GP’s last fund and GP style drift were the only two factors ticked by more than 70 percent of respondents. 

“LPs are paying more attention to transparency,” said Mizuno. “They want to make sure there won’t be any conflict of interest – in other words any organisational misalignment.”

However, within the overall pessimistic view of the asset class, Mizuno believed the more positive outlook on Asian investment opportunities compared to other opportunities globally, which was picked up in the Summer 2009 Coller Capital barometer, still rang true.

“It’s my personal belief from talking to investors that perception of the opportunities in Asia hasn’t really changed. People still believe in Asian opportunities,” he said.