The prevailing perception of private equity in Asia is that cash distributions are overall continuing to slow down. Hence some investors are focusing more attention on US private equity resulting from strong overall distributions.
However, Altius Associates has seen a select group of Asian private equity managers distribute more capital last year than ever before and market conditions for investing seem better than they have been for a number of years.
Instead of pulling back, investors – that is, the limited partners or LPs – should grow their Asian programs, while remaining highly selective, disciplined and long-term oriented.
Altius Associates advises and manages approximately $24 billion in private equity and real assets funds for clients based across Europe, North America and Australia.
A total of $25.4 billion was returned to investors in 2013, according to Asia Private Equity Review (APER). The amount distributed was higher than in each of the previous two years, thanks in the main to higher investment exits in Japan, Australia, and Indonesia.
The total number of portfolio companies exited decreased, suggesting that larger sums of capital have been returned from larger transactions. Statistics also point to a rebound of exits through public markets in the second half of 2013 and we expect the increase to continue throughout 2014, supported by the reopening of the Chinese market for initial public offerings and by more robust exit conditions for trade sales.
For 2014, we expect to see an increase in exit values with an anticipated rebound in exits via public markets, particularly in China, and continued increase via trade sale and secondary transactions across the region.
Asian managers have been able to eke out a better return multiple by an average of 60 basis points in the first half of last year compared with the same period in 2012. The average realised gross multiple – which is derived by dividing the cumulative distributions from a project by the paid-in capital – was 2.5 times, according to APER. We expect this trend to continue when the figures are released for the second half of 2013.
Emerging Asia has also outperformed North America and Europe based on the five-year comparative end-to-end net returns index compiled by Cambridge Associates.
The Asian private equity landscape is still maturing and consolidating and select managers are emerging from the pack. As a result of the macro challenges, these have grown stronger over the past few years by having focused on developing their capabilities, allowing them to deliver superior long-term returns independent of market cycles and by distributing more capital at even higher returns while others struggle to do so.
As a result, certain general partners in the market with new funds have been oversubscribed and select emerging managers with experienced teams and differentiated strategies have also seen strong investor backing.
LP relationships with these GPs built on trust and partnership over many years, combined with long-term oriented and stable commitment of capital, have become the only assurance of access. Manager selection becomes even more critical as the landscape is increasingly bifurcated into the best- and non-performing managers, with little grey area in between.
The current challenge for LPs is to refocus resources and attention on Asian private-equity investing by taking a long-term view in a market that is asymmetrical, highly heterogeneous and still relatively young. Years of experience in this market as well as on-the-ground knowledge will prove to be the only way to navigate the complex and changing terrain of Asian private equity in the years ahead.