Coller Capital’s latest global private equity barometer for summer 2023 shows distinctly divergent expectations of private equity performance according to the regional bases of its 110 leading limited partner investors in the asset class. Some 70% of Asia Pacific LPs believe that 2023 and 2024 will be strong vintage years for private equity in their region.
This contrasts markedly with overall averages incorporating the European and North American perspectives, where only 37% believe that 2023 will be a good vintage year for Asia. The share is higher – 45% – for 2024.
In spite of macroeconomic uncertainties, the majority of Asia Pacific investors plan to raise or maintain their allocations in the next 12 months, underscoring confidence in their outlook for private markets, according to Peter Kim, head of Asia at Coller Capital. He highlights business services and healthcare as two sectors expected to deliver strong returns in the region.
The divergent expectations could be driven by divergent exposure. After all, home country bias would typically drive Asian LPs to allocate to local funds, which may be better positioned to benefit from local growth. This appears to be borne out by expectations for different segments of the asset class, with well over 80% of LPs expecting lower middle- and middle-market buyouts and special situations to deliver the best returns over the next couple of years.
In bad news for the big Wall Street firms, only 25% see good investment opportunities in large buyouts over the next two years, and only 11% expect good opportunities in mega-buyouts. Furthermore, 51% believe that the amount of debt in buyouts is too high. That could also be bad news for disposal of the asset class’s overhang of dry powder.
LPs also appear to have solid expectations of the best deal generators in Asia Pacific. Around 61% of respondents anticipate the best opportunities to arise thanks to business families and entrepreneurs, and corporate disposals and spinoffs.
Meanwhile, only 28% expect the best deals to arise from within the industry itself, through secondary buyouts, versus 54% for North American secondaries and 44% for European secondary buyouts; and only 25% envisage Asia producing strong performance from privatisations.
Another consideration for general partners to watch is that 25% of LPs overall plan to reduce allocations to individual GPs, while only 26% plan an increase. Funds of funds and other intermediaries can look to benefit accordingly. There’s an equally even split between those planning to increase and decrease the numbers of GPs they invest with over the next three years, with 29% on each side.
Finally, reported returns across the asset class have peaked at their highest levels in the past ten years, according to the barometer, with 56% of respondents reporting returns in the 11%-15% range and another 39% with returns of 16% or more.
