More Dickensian by the Day

Greetings from Jakarta, home to 30 million people (metro) and half as many cars, judging by traffic. I’m nearly halfway through a circuit of Southeast Asia, where I’ve been meeting with some great managers and discussing the evolution of the region’s private markets landscape.

Over the last five years, LPs have consistently ranked Southeast Asia as one of the top two most-attractive markets for GP investment. Yet this year’s Global LP Survey from EMPEA highlights the perennial disconnect:

• 41% of respondents plan to begin or expand their commitments to Southeast Asia over the next two years;
  
• However, 32% say a limited number of established fund managers deters them from investing in the region (the highest percentage of any EM region); and,
  
• 25% say the scale of the opportunity to invest is too small (also the highest percentage across all EMs).

We share a few our of key takeaways from EMPEA’s survey below, but the fundraising environment is becoming more Dickensian by the day.

In any event, I’m off for a weekend in Siem Reap to admire what Norman Lewis described as “probably the most spectacular man-made remains in the world.” Then, I’ll be heading to Ho Chi Minh City for AVCJ’s conference. Let me know if you’re in town.

If you’re interested in having Portico produce a report on the private markets landscape in Southeast Asia, then please drop me a line.

Best wishes,
Mike

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A Grim LP Survey

Some depressing reading is on offer in EMPEA’s 2017 Global LP Survey. There are a number of interesting nuggets throughout the report, but I came away with three big takeaways:

• Talk to the hand — The pie of capital earmarked for EM PE is shrinking. To wit, 25% of LPs plan to decrease the proportion of their PE allocation targeted to EMs over the next two years; this figure jumps to 36% for LPs that have been active in EM PE for more than 15 years.
  
• Show me the money — The percentage of LPs expecting at least 16% net from their EM PE portfolios has continuously declined over the last five years: from 61% in 2013 to 43% in 2017. It’s also the first year that this figure dipped below 50%.Though only 17% of respondents expect ≥ 16% net from their developed markets portfolios, I suspect the drivers of these expectations are different: in EMs, it’s a lack of distributions coupled with FX, while in DMs, a surfeit of capital and leverage is fueling frothy entry valuations.
• Chasing the rabbit — It’s hard not to think LPs are exhibiting some procyclical behavior: India rings in as the most attractive market while Brazil languishes at sixth; health care and consumer goods / services rank as the most attractive sectors.

  ¯\_(ツ)_/¯

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A Platinum Lining?

I always make time to read what KKR’s Henry McVey has to say about the markets, and his latest report, The Ultra High Net Worth Investor: Coming of Age, is no exception.

Whereas family offices constituted 6% of the respondent base of EMPEA’s LP Survey (call it 7 or 8 respondents?), KKR surveyed over 50 Ultra High Net Worth clients (defined as investors with ≥ $30m in investable assets and including family offices). The findings should provide a modicum of encouragement to private markets fund managers, as UHNW investors have a tendency to adopt a genuinely long-term perspective, and embrace alternative assets (see charts below).

Money shot: The stock of global HNW assets stands at $60 trillion with a 5-year CAGR of 7.4%, compared to global pension assets of $36.4 trillion and a 5-year CAGR of 5.8%.

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