Booming markets and abundant opportunities have allowed private equity in Asia Pacific to grow from strength to strength.

Asia Pacific has quickly grown to become a major fundraising region for global and regional private equity (PE) players, with an estimated US$37.8 billion raised in the first nine months of 2018, surpassing the US$37.7 billion recorded for the entirety of 2017.

With up-and-coming economic powerhouses such as China and India boasting a burgeoning middle class and rapid technological advancement, the region has become a source of capital and destination for investment.

The region’s performance of private equity against other asset classes has fared well and attracted strong interest among a range of limited partners (LPs), particularly for global pension funds and sovereign wealth funds. General partners (GPs) also face increased competition from their peers to put capital to work in the best possible deals; all the while contending with record valuations in the marketplace, especially in the technology sector.

Global PE groups are thus now looking to enter into Asian private markets, which represent massive untapped opportunities.

Boom For Local And Global Players

Interestingly, of the 10 largest global private equity funds in the market, six are Asia-focused; and of the 290 private equity real estate funds being launched globally, approximately 25% of them are focused on the Asia Pacific region. In Q3 2018, 36 funds with an Asia focus closed with US$25 billion raised in aggregate capital which was 2.5 times that of Europe where 39 funds closed with US$10 billion in aggregate capital.

Regional players such as Hillhouse Capital Group tend to dominate fundraising in the region, with US$10.6 billion raised for its Fund IV. However, heavyweight US names including KKR and Carlyle Group are also prospering in the region, with TPG Capital becoming the fourth US-based firm in the last 10 years to raise more than US$4 billion for an Asia-focused buyout fund, closing TPG Capital Asia VII at US$4.6 billion.

Some global PE groups have undoubtedly had success fundraising in Asia over the last few years, thanks to their strong track record. However, local PE groups present something different to the global behemoths when going after the same investors, as they are able to demonstrate more of a niche expertise. It is also seen that the more regionally focused the investment strategy is, the easier the fundraising process tends to be in Asia.

Opportunities Across The Region

For countries and certain sectors such as infrastructure where the investment horizon is longer, it takes a longer time to attract the right number of LPs. TMF Group has seen one leading PE client successfully raise not only one but two funds, attracting a range of high-profile pension funds, in areas such as logistics or warehousing in India. Some of the global players are also exploring opportunities in distressed assets, buying them from financial institutions in India and generating good upside returns for investors after revamping their operations.

Aside from China and India, some managers are looking closely at established markets such as South Korea and Japan for the right opportunities. To some extent, Vietnam is favoured while Indonesia is also shaping up to be an attractive location with good dynamics in the consumer and financials space. But PE groups are bidding their time and waiting for the dust to settle following the recent elections in April 2019.

Global PE managers whose strategies have broad pan-Asia exposure will also consider the Philippines, Malaysia and Thailand, whereas regional managers tend to be more country-specific, or choose to focus on Southeast Asia (Indonesia, Philippines) or North Asia (China, Japan, South Korea).

Optimism Amidst Market Correction

But while 2018 was a record-breaking year in the region, the outlook ahead is increasingly gloomy with a decline in overall fundraising. PE investors are on guard against disconcerting market developments that could affect investment activity and returns such as liquidity tightening in China and the ongoing trade conflict with the US. There are also valuation concerns; putting pressure on GPs to generate future returns to meet investor expectations. There could be a degree of market correction this year, which could impact some PE funds.

On the fund administration side, including doing valuation work on the underlying portfolio companies on behalf of its clients, there is plenty of future growth yet to be realised with respect to Asia Pacific’s private equity marketplace. Private equity will remain a core part of investor portfolios as they continue seeking early stage growth funds, secondary funds, buyout funds and private debt funds.

About The Writer

Rajindar Singh is Director of Private Equity & Real Estate at TMF Group, where he leads the sales team in the growth and development of the Private Equity/Real Estate (PERE) and Capital Markets businesses across the Asia Pacific region. Rajindar has more than 30 years of professional experience serving global organisations in both fund and investment management roles. Prior to joining TMF Group, he served as Finance Director Asia with TRG (The Rohatyn Group) managing their substantial ex-Citi Global Private Equity Funds. He also acted as a Senior Director with the Orangefield Group building up their fund administration business from inception in Asia.

This article was first printed in MillionaireAsia Issue 54 - December 2019

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