CEPRES, an investment decision network for private markets, has released new research on the benefits of Asian Investments for portfolio diversification and risk mitigation.
By analysing over 5,500 Asian PE deals dilligenced between LPs and GPs on their network, CEPRES discovered most Asian PE deals are driven by revenue and margin growth versus the more common pricing and leverage factors found in US and European buyouts. In developed markets, PE-backed company valuations are highly dependent on market pricing and returns are heavily driven by leverage. Conversely in Asia, CEPRES found revenue and margin growth are driving returns and so there is less correlation and hence risk in case of a market correction.
Highlights:
• Analysis of 5,500 Asian PE deals versus 55,000 western PE deals
• Asian PE deals do not exhibit any greater risk than western PE deals
• Value creation and investment returns in Asia are driven by strong growth fundamentals, rather than market pricing and leverage
The full report is available to CEPRES members from: https://www.cepres.com/latest-intelligence-for-lps
Dr Daniel Schmidt, Founder & CEO, CEPRES, says: “Even though absolute performance of Asian PE Investments are somewhat lower than their Western counterparts, any portfolio can benefit by adding some Asian investments. There is a strong reason to add Asia to a portfolio: Value Creation is driven by other factors that provide a hedge. In a portfolio context, this creates broader multi-factor influence and a heterogeneity of potential risk factors.
“In highly diversified portfolios, on a stand-alone basis, Asia’s systematic (market) return is not outperforming. The evaluation of benefits generated by adding a larger number of Asian investments is the independence of their systematic return generation from valuation-multiple expansion: Portfolio companies Enterprise value is driven by improving operations which still are weak at many Asian companies and where a high potential exists for active managers to improve.”
