Large institutional investors in Asia are ramping up private
equity co-investments to lower risk by pairing up with
experienced players, according to a new report.
Sovereign wealth funds, in particular, have been more open
to deals to co-invest in private equity, real estate, and
infrastructure than have state pension funds, according to the
report, published by research and consulting firm Cerulli. As
sovereign wealth fund portfolios diversify toward foreign and
alternative investments, some are tolerating more risk to
achieve returns, Cerulli says.
Koreas sovereign wealth fund, the Korea Investment
Corporation, sought co-investment opportunities even before
alternative investments were a growing trend in the region. In
March 2015, KIC paired with Busan Port Authority, which
operates maritime and seaport trade in Korea, to co-invest in
infrastructure. The fund, which had assets equivalent to $91.8 billion at the end
of 2015, also secured partnerships with Korea Development
Bank and Korean Teachers Credit Union in recent
Co-investment, in which institutions
invest in companies or other investments alongside their external asset managers, is often a
suitable option for institutions that do not have the staff to
make direct private equity investments, said Barbara Wall,
Cerullis Europe managing director, in the report.
However, it needs to be remembered that successful
co-investing does require general- partner-like
knowledge, she added.
While KIC pursued co-investment early on, two of Asias
most active institutions in the strategy are Singapores
two sovereign wealth funds GIC and Temasek. GIC has been
a trailblazer in sourcing deals, Cerulli says, and
is also pursuing more complex investments. Its years of
investment experience and own investment teams have given it
confidence to invest by itself, or co-invest when the stakes
are high, Cerulli wrote.
In 2013, the fund introduced a framework that allowed it to
take a more active approach to investments. GIC in February was
reported to be in discussions along with private equity
managers KKR, CVC Capital Partners, and Ardian to acquire a
stake in Telxius, a subsidiary of Spanish telecommunications
Temasek, despite preferring direct investment, also launched
a co-investment vehicle called Astrea II in 2014. Temasek owned
38 percent of the vehicle and had holdings in 36 private equity
funds at the time of the launch, according to the report.
Chinese state institutions are expected to pursue more
public-private partnerships and co-investments in the near
future, Cerulli said. The China Investment Corporation created
a real estate department in 2015; its most recent investments
have been in infrastructure. Last year, CIC began a joint
investment in the Port of Melbourne along with Australias
Future Fund and several other partners. Its previous joint
infrastructure investments included one in Turkey.
Co-investments among Asian institutions can be expected to
increase as funds try to alleviate cost pressures. But as these
investors strengthen their capabilities and expertise,
co-investment will eventually fall out of favor, Cerulli