A recent headline in Singapore’s Business Times must have attracted the attention of quite a few local institutional investors, asking ‘Is Asian private equity still an attractive play?’
Coincidentally or not, the Singapore Venture Capital and Private Equity Association (SVCA) has just announced a partnership with Cambridge Associates to provide quarterly benchmarks on aggregate performance of private equity and venture capital across Southeast Asia. It promises to offer vintage year statistics and total portfolio returns where enough data is available. According to SVCA chairman Thomas Lanyi, Southeast Asia “lacks reliable benchmarking data for the private equity and venture capital industry" and therefore the initiative is “long overdue and truly welcomed”.
But no matter how laudable the initiative is in principle, there’s one reason to be wary. And no, I’m not referring to the fact that the industry group whose members are the ones being benchmarked is a key partner in the plan. Singapore is one jurisdiction where I would expect reasonable transparency and integrity in this respect.
There’s another, deeper reason to question the value of such benchmarking exercises. The SVCA/Cambridge Associates initiative emphasises that data will be "disguised and aggregated" out of respect for the confidentiality of particular funds and their investee assets. The private equity industry has long resisted that kind of deep-dive performance benchmarking of individual funds and portfolio investment, on the grounds that it exposes firms’ confidential value-creating techniques and intellectual property.
Yet that has always been the most critical kind of information for institutions’ investment decisions in the asset class. Limited partners are not investing across a benchmark: they are committing to individual, distinct funds, whose performance may swing far wide of the mark. Capturing the top-quartile, top-decile performers has always been the biggest challenge for institutions wanting to invest in private equity.
That Business Times report was penned by Brenda Lau, head of private equity for Asia at Indosuez Wealth Management. Against concerns of peak valuations and a bubble in private equity worldwide, she says her firm remains positive on Asian private equity and plans to increase portfolio exposure to the region from 25% to 30%. However, she also emphasises that “the gap between the top-quartile and bottom-quartile managers is huge” - as much as 15% internal rate of return.
If Asian private equity is still a rising tide, it is one composed of huge peaks and troughs. Those may average out to a flat calm, but the boats caught in the troughs won’t necessarily feel lifted.