China still reigns as the most sought-after location for private equity, but that market is being flooded with newly cashed-up players who are chasing up the prices of deals. Beyond China, most investor interest for growth capital private equity deals is tilted towards India and Indonesia.

“We believe that the time to commit to India may well be now,” says Doug Coulter, head of private equity in Asia-Pacific for LGT Capital Partners.”We’re at a very interesting inflection point in terms of per-capita income and the government is very serious about infrastructure spending.

"You also have world-class management, even at some relatively small private equity-backed companies. Finally, the exit market in India could become even more interesting."

The success of Indian online travel agency MakeMyTrip, which listed on Nasdaq last summer and whose investors include SAIF Partners and Helion Venture Partners, has been a game-changer in terms of the way people are looking at exit markets for private equity-backed Indian firms.

People who allocated capital to China in the early 2000s did well and the thesis is that India, in terms of the development of its private equity ecosystem, is at a similar stage. 

LGT believes the key in India, as in China and elsewhere in Asia, is to stay away from groups trying to deploy funds that are too large for the Asian opportunity set.

For those who still hold a candle for Indonesia, LGT sees potential inflows into the country, although it also sounds a cautious note. “We believe that Indonesia, despite the significant risks that remain in that country, will be a more interesting place to deploy capital,” says Coulter.

“The relative undersupply of capital in Indonesia from institutional firms favours risk capital providers like private equity. Again, though, the advantage will be with the locally networked groups that know who to avoid doing business with.”

Throughout Asia, investors in the growth capital segment are backing fast-growing private companies that generally have no leverage. They are also getting into a mix of companies, mostly in consumer-related sectors or businesses that are benefiting from the substantial pace of urbanisation that is taking place in both China and India.

A specific example that LGT provides is in the healthcare sector, where many private equity managers are making investments in private companies. The broad healthcare sector in China represents less than 2% of stock market capitalisation, while in more developed markets such as the US, that sector would typically represent up to 15% of market cap.