Defining Asia

A recent survey shows LPs are most bullish on ’Asian buyouts’, but what does this mean in practice? Judy Kuan investigates.

Anecdotal evidence of investors’ enthusiasm in the Asian buyout space has been further bolstered by recent quantitative findings. In a recent study commissioned by London-based secondaries investor Coller Capital, the most attractive category of within the context of North American, European, and Asia-Pacific buyout and venture investing has shown to be Asia-Pacific LBOs, which apparently have replaced European buyouts as investors’ top pick.

Mizuno: defining the Asia opportunity

But what, precisely, does the term ’Asia’ connote, particularly in describing an attractive investment locale for LPs?

Clearly the individual markets found in geographic definition of ’Asia’ span the spectrum of development – both in a general economic sense, as well as specifically within the private equity context.

According to Hiro Mizuno, a partner based in the London office of Coller Capital, “It’s difficult to generalise, but if you look at our last survey, we asked which country within the emerging private equity markets the investors were more interested in. China and India scored quite high, but on the other hand, we knew through our conversations and previous surveys that no one regards Japan and Korea in terms of emerging markets within the private equity market.”

When conceptualising the attractiveness of the Asian buyout market, two key factors are influencing investors’ perceptions, observes Mizuno. First, people started becoming more comfortable with the investments that had been made in the region, which have generated high returns for investors – and which have mostly taken place in Japan and Korea, he points out. On the other hand, notes Mizuno, investors are also bullish about the growth opportunities for China and India, which are still are risky markets, but have an overwhelming potential for growth.

And when speaking with Asian investors, Mizuno notes that he has noticed a bit of confusion over the impact of these factors. “I hear people saying, ’We have successfully invested and the market is more sophisticated,’” says Mizuno, and while this success and sophistication applies primarily to Korea and Japan, some are overlaying that sentiment on the Chinese and Indian landscapes.

Mizuno also points out that, while 45 percent of respondents in the recent survey thought Asian buyouts are ’very attractive’ versus the 34 percent who see European buyouts as ’very attractive’, on the flip side is that 17 percent think Asian buyouts are ’not attractive’ as opposed to only 12 percent for European buyouts.

“The deviation of the opinion about the Asia-Pacific region is still wider than the opinion on Europe or North America. It’s a sign that some people are still trying to figure out the risk,” says Mizuno. “They started seeing some countries [in Asia] that are already developed and have seen successful investments and exits, while they see high opportunities accompanied by high inherent risk in other areas. That’s what’s behind the results of this survey.”

There may be risks, but it’s clear that overall, the Asia-Pacific buyout market has reached the point of attracting the attention of the investor universe, concludes Mizuno. Whether they regard it as emerging or established, investors are of a mind that they can no longer ignore the Asian market and its significance.