Private equity investors believe mounting geopolitical tensions and the ongoing fallout from the Covid-19 pandemic 2021 could cause private equity deal losses and more distressed transactions. But they anticipate Asia Pacific economies and investment opportunities rebounding faster than other parts of the world, with China and India looking like particularly appealing investment opportunities. 

Source: Dechert

According to a December 2 report* by US-headquartered law firm Dechert, the total number (2,260) and volume ($382.7 billion) of global buyout deals for the first three quarters of this year dropped 21% and 12% year on year, respectively. 

However, both the number and value of private equity deals across the world rebounded in the third quarter and the long-term outlook for private equity appears resilient due to the low-yield and low interest rate climate.

Still, investors are paying close attention to geopolitical tensions and will need to stay on top of their due diligence practices in the coming year.

“Investors need to bear in mind regulation risk and will need to find a balance between risk and reward,” Siew Kam Boon, a partner at Dechert, told AsianInvestor.

Siew Kam Boon, Dechert

Difficult economic conditions could also negatively affect private equity portfolios. Ninety percent of respondents to Dechert’s poll said they expect more distressed deals and 82% believe more deal delays will occur in 2021.

This is already being borne out to some extent in terms of financing difficulties, according to Boon. “Another issue for investors is bridging valuation gaps. We’ve done more [deals] this year to bridge valuation gaps such as earn-outs and convertible financing,” she said.

The market environment could get worse before it improves, based on its performance after the last major crisis. A report by alternative asset data provider Preqin noted that the private equity market register a 30% year-on-year loss in March 2009, courtesy of the global financial crisis. And 44% of investors in the Dechert poll believed Covid-19 would affect the industry more severely than that period.

In terms of performance, Asian and American markets suffered heavier losses in the first quarter (more than 6% of value), but both picked up quickly in the second quarter while European markets’ correction continued into the second quarter with almost 4% losses, according to a report by eFront, published in December.


Geopolitical concerns remain private equity investors’ largest concern, especially in Asia Pacific. One quarter of respondents to the Dechert poll anticipate trade conflict between the US and China will have the biggest impact on the deals environment in the coming 12 to 18 months, the most popular option.

Tensions have spilled out well beyond the world’s two largest economies. Australia, India, the European Union and Japan have all been involved in trading spats with the US or China, which in many cases have led to the imposition of tariffs and sanctions. This has put geopolitical tensions under the spotlight, Boon said.

Yang Yan, managing director at BlackRock Private Equity Partners, agreed that uncertainty from geopolitical tensions and the global pandemic are the key market risks.

Given these concerns, conducting effective due diligence is more important than ever. However, investors have found it challenging to conduct sufficient on-site due diligence for potential investments amid travel bans and lockdowns.

“Established global investment firms have been following their potential targets for a while and have a lot of existing knowledge about them. But there are some other sectors, such as manufacturing, where they think on-site due diligence is important,” added a senior investment executive working at a global private equity firm, who declined to be named.


While private equity funds are facing multiple obstacles to investing, Asia looks like the most appealing geographic region.

Liu Wanlin, managing director of The Carlyle Group, told AsianInvestor that the group, which had $230 billion under management as of September, has deployed over $22.5 billion in Asia Pacific – over $10 billion of which was invested into China.

Liu Wanlin,
The Carlyle Group
“We have been increasing our investments in Asia Pacific and will continue to invest more capital and resources in this strategically important region,” she said.
Dechert’s Boon echoed similar views. “From March to April, some of the deals were impacted by Covid-19, but we saw significant pick-ups after that. Asia is recovering quicker than the rest of the world and is still one of the most attractive destinations for private investing.”

According to Dechert survey, Asia Pacific saw a 13% rise in buyout deal volume ($80.5 billion) in the first three quarters of 2020, compared with the same period in 2019. The top regional destination for investment was TMT (technology, media and telecom), followed by the pharmaceutical, medical and biotech sectors. Asia Pacific’s volume of deals over this period fell 8% to 379 deals, compared with a 12% drop globally. 

“Private equity funds have a life cycle of at least 10 years, and we are increasingly focusing on high growth sectors and are seeing attractive investment opportunities in growth areas such as technology, healthcare and consumer across Asia, particularly in China and India,” Liu added.

Yang told AsianInvestor there is still a long runway as Chinese consumers look for quality and experience over quantity in both products and services. 

“We continue to see strong interest in sectors including healthcare, education, advanced manufacturing and hard technology while cross-border and export-driven businesses may continue to face challenges,” he said.

*The Dechert report polled 100 investors in private equity firms in the second quarter 200. The regional split was 45% from North America, 35% from EMEA and 20% from Asia Pacific.