Private Equity Fund of Funds Investors Looking to Asia
Asia has been the focus of many hedge fund investors’ searches during the past year. Now it seems to be topping the list of many private equity investors as well.
During the past quarter, BHA analysts have noticed increasing interest in Asia-focused funds of private equity funds. Much of this interest comes from pension funds and insurance companies. In fact, these two investor categories accounted for more than half of BHA’s fund of private equity fund mandates during the past month.
Many of these investors are looking to make their first investment in the region. A Swedish-based pension fund has determined that its current portfolio is underweight in this region. Because this is its first foray into Asia, however, it is researching funds of private equity funds. The firm believes this fund structure will help it gain exposure to the region more easily and efficiently than if it were to research and select individual managers and funds.
Taking the multi-manager route seems to be a common approach. A large insurance company based in the Netherlands that is also looking to invest in the region is evaluating funds of funds. It is interested in diversifying its portfolio across many private equity strategies, and it wants to be able to rely on established managers with an expertise in the region to select the right funds.
Apparently, BHA analysts are not the only ones who have spotted the growing interest in Asia among private equity investors. According to the Financial Times, “More money is set to pour into private equity in emerging markets, as investors increase their commitments to funds targeting deals in China, India and Brazil.”1 In fact, the Emerging Markets Private Equity Association expects the proportion of total private equity commitments going towards emerging markets will double to 11 to 15 percent in two years.2
BHA expects Asia-focused funds of private equity funds to stay on investors’ radar screens for some time. Given the growth in the region and the many funds of funds with expertise in the market investors will want to take advantage of this opportunity.
1,2 Financial Times, “Investors set to double private equity bets in emerging markets,” April 19,2010.