CIC's head of PE sees opportunities in Europe

"I think the current crisis is actually making European countries think about what they are doing and forcing them to reform," Linbo He told the Hong Kong Private Equity & Venture Capital Association's (HKVCA) China summit. "If they keep to these reforms, we expect the crisis will make Europe stronger. Of course you need to be selective and choose projects cautiously."

He emphasized his comments were his own personal opinions and don't necessarily reflect those from CIC.

According to He, private equity fundraising globally was very difficult in 1998-2005, but performance was strong. In 2004-2008, when public markets were bullish and there was ample liquidity because central banks kept interest rates very low, fundraising was easy but performance was "extremely bad."

"If past history can tell us about something about the future, we should have more confidence in private equity investment," He said. "Private equity has clearly outperformed public markets."

Private equity has become increasingly attractive to sovereign wealth funds seeking asset diversification and long-term returns. In support of this thesis, He cited an unnamed US endowment – said to follow a similar strategy to sovereign funds – that had seen a 35.3% return on its private investment portfolio as of June 2012.

However, success hinges on careful portfolio construction, manager selection and relationship management. Global private equity assets totalled $3tn as of year-end 2011 and about two thirds of that was unrealised, He noted, underlining that performance, though strong, has not been balanced across the market.

"Since the dispersion within private managers is huge ... you need to be very careful that you should not focus too much on diversifying exposure to different managers. You really need to choose the best ones," said He.

This article was first published in unquote's sister publication AVCJ

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