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Asia’s wealthy choose to partner, not invest in, private equity

Asia's wealthy investors are increasingly interested in private equity investments, but they often prefer to skip the fees and partner with funds instead, analysts said.

"Co-investment," or buying a direct stake in a company alongside a private equity fund, has been popular with pension and sovereign wealth funds for a while, noted Andrew Thompson, head of private equity for KPMG in Singapore, citing the lower fees.

(Read more: Tiger 21 founder: Super-rich clients looking toward private equity in 2014)

Singapore has become a hub for private equity in Asia.
Roslan Rahman | AFP | Getty Images
Singapore has become a hub for private equity in Asia.

Often, private equity funds want to complete a deal that may be too big for the fund or it would be "imprudent" to commit large amounts of capital to one acquisition, leading them to seek additional investors, he said.

But now, it's a model more of Asia's ultra-high net worth individual investors are seeking out, with co-investment opportunities in high demand, said Nicolas Campiche, chief executive officer for alternative investments at Swiss private bank Pictet.

(Read more: CNBC Explains Private Equity)

"It's a way investors can get closer to the real economy – by owning privately-owned companies,"Campiche told CNBC. "For a client who was an entrepreneur, it echoes their own experience."

Investor surveys in the region have noted that Asian investors also tend to be very conscious of costs, indicating that the chance to invest alongside private equity while avoiding much of the fees would likely be attractive.

(Read more: Private equity poised to pounce on southern Europe)

Thompson also noted the serendipity between the region's wealthy and private equity.

"For generations, ultra-high net worth individuals have been [using a] similar kind of approach to what the private equity businesses have institutionalized," Thompson said. "It makes a lot of sense for them to team up," he added.

He also noted that in Asia, co-investors and private equity funds tend to partner for more than just capital.

"In this region, some of the family connections and business interests can be very helpful in getting deals done. But perhaps on what may be called the structural, technology or business improvement side of things, things may not be as developed," Thompson said. "The idea of partnering with private equity for mutual gain is a very sensible."

(Read more: A whistleblower wants to take away private equity's 'crackcocaine')

Asia's aging demographics may also be driving some of the increased interest in private equity deals in the region.

"They're the twin drivers of supply - the realization that private equity is a partner that can grow a business faster or transform it … or also as an intergenerational tool where you say the next generation of family members may not wish to work inside the business," Thompson said.

(Read more: Private equity salivates at bullish 'middle market')

To be sure, not everyone expects Asian investors' fresh interest in co-investing will drive deals within the region.

Pictet's Campiche believes the opportunities are better in developed markets.

"Most transactions in Asia private equity are minority participation in companies. We like when the general partner takes over and can transform the company," Campiche said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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