Asia private equity: Down, but selective opportunities abound

Following a plunge in Asia Pacific’s private equity markets, investors are shifting away from a growth-at-all-costs mindset and becoming more selective as they look to deploy their capital.
Asia private equity: Down, but selective opportunities abound

Asia-Pacific’s private equity market plunged last year, as inflation and global tensions reduced investors' appetite for risk, according to a recent report from Bain & Company.

The region's total deal value fell by 44% to $198 billion in 2022 in contrast to the $354 billion in 2021, the Asia Pacific Private Equity Report 2023 report said.

Around 70% of polled fund managers anticipate the downward trend to last through 2024, according to the report.

As the macroeconomic landscape remains unstable, higher inflation and weaker growth are likely to have a strong impact on investment choices and portfolio performance in the coming year according to Gary Leung, head of alternatives, APAC clients at JP Morgan Asset Management.

“For venture capital and growth equity, because of macroeconomic and geopolitical uncertainty, we expect deal volume to slow down as deal makers become increasingly selective and are moving from a 'chase growth at all costs’ to a more fundamental-based approach — growing more valuation-conscious while emphasising the companies’ value proposition to their clients,” Leung told AsianInvestor.

Greater China and Southeast Asia both experienced significant declines in 2022, falling 53% and 52%, respectively.

Greater China was affected by zero-Covid-19 policy uncertainty, geopolitical tensions, and tech regulatory crackdowns, while Southeast Asia was affected by fewer growth agreements.

Transaction value decreased by 48%, 39%, and 28%, respectively, in Australia-New Zealand (ANZ), Korea, and Japan. Transaction value also fell by 25% in India, said the report.


Gary Leung,
JP Morgan AM

It will take a while before buyer and seller expectations converge,

“For buyout, we are also seeing less transactions with less leverage being used — primarily driven by an uncertain earnings outlook, increased leverage costs, and sellers holding out on price," said Leung.

"That said, there is approximately $1.7 trillion of dry powder available globally for venture capital, early stage, growth and buyout as of March 2023 (according to another data provider Preqin). There is need to deploy this capital so we will see deal activity recover at some stage – primarily driven when the investment period expires for these committed capital” he added.

Royston Low, head of private investments, Asia at BNP Paribas Wealth Management expects deal volumes to recover slightly in the second half of 2023.

“This will be when the current gap in valuation closes between what buyers are prepared to pay and sellers are prepared to accept,” Low told AsianInvestor.

“While visibility on the macroeconomic outlook—including the risk of recession—will impact investment pace, many managers are now cognizant that staying completely on the sidelines is not an option given the experience where some of the best performing deals were deals closed during the global financial crisis,” said Low.


JP Morgan AM's Leung expects that private equity and private credit will be the main drivers in the secondaries space due to the ‘denominator effect’.

Royston Low
BNP Paribas WM

“A lot of investors overallocated to private equity in the past year given the public markets’ drawdown, so they are expected to sell down their PE portfolio to rebalance their asset allocation. Hence, we expect to see more secondaries’ supply in the market,” said Leung.

“The recent interest rate hike has changed the fundamental valuation of early stage and growth companies, which depends a lot on future earnings – such impact has been reflected in the public markets, and we may see that filter through to the private markets.”

In the growth equity space, this revaluation may present a good entry point for long term investors and Leung and his team see opportunities from specific megatrends such as climate technology and life sciences.

“We have also seen venture deal flows growing in areas such as artificial intelligence,” he said.

Low’s team also expects that private equity managers will adapt their investment strategy into more defensive sectors, but should also be on the lookout to take advantage of the downturn.


GPs with active buy and build strategies are also likely to benefit from this environment, according to Haresh Vazirani, senior investment director of private equity at abrdn.

Haresh Vazirani,

“Some of the best returns in PE are delivered in volatile and uncertain times. We are watching the corporate carve out and growth at reasonable price (GARP) opportunities closely for asymmetrical risk-reward,” Vazirani told AsianInvestor.

"The global market environment is bound to have an impact on overall PE activity in Asia. Local and domestic PE investors thrive in environments like these, with limited competition and longer deal cycles. We believe activity will pick up first for that segment,” he said.

Elsewhere, Vazirani said there will be company failures in Asia due to the volatility, which could mark a comeback for special situation funds.

“Overall, we believe there is a strong place for Asian PE in global portfolios. It acts as an attractive diversifier, with different value creation themes and sectors versus its western counterparts.”

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