PE fundraising down, buyout activity rises
Asia-focused private equity funds took in $4.3 billion in the third quarter, down from the $17.2 billion raised in the same quarter last year, according to data provider Preqin.
The region follows a global trend which has seen $83 billion raised by 212 vehicles in the third quarter of 2013, compared with $87 billion raised by 179 private equity funds in the same prior-year quarter.
However, over the past 12 months there has been an overall improvement in fundraising trends in North America and Europe, says Preqin.
Industry executives reason that Asia’s slower capital-raising activity could be attributed to factors that include an exceptional number of fund closures last year, and the high level of so-called ‘dry powder’ – or undeployed capital – held by vehicles, obviating the need to raise new funds.
The amount of dry powder for Asia-focused PE funds stands at $153.7 billion, according to Preqin. This has been a driving force behind healthy buyout deal flow in the region with $7.1 billion worth of deals in the quarter – a near three-fold rise from the $2.5 billion in the second quarter.
MBK Partners’ $1.65 billion buyout of insurer ING Life Korea, which was announced in August, ranked as the region’s biggest deal in Q3.
Preqin foresees a continued trend of deal flow in the region, noting last week’s announcement of a major PE exit: TPG and DLJ Merchant Banking Partners’ sale of an 87.5% stake in German bathroom fixtures Grohe to Development Bank of Japan and JS Group Corporation. The deal values Grohe at $4.1 billion.
As an investor base for the asset class, Asia has been the most active among limited partners (LPs) globally, with a survey of institutional investors in the region indicating that 86% had made new commitments to PE in the first half of 2013, compared with 47% by peers in Europe and 55% in North America.
Asia was deemed to be the best market for PE deal opportunities by 60% of domestic investors. They may help to further fuel market-specific – rather than pan-Asian – private equity funds in the region.
For instance, RRJ Capital raised $3.5 billion for its RRJ Capital Master Fund II which closed in the first quarter. The Hong Kong- and Singapore-based firm focuses on China, Southeast Asia and also the energy sector in the US energy sector.
“LPs from within Asia may have a clearer idea of where, specifically in Asia, they want to invest capital, and this is where the more niche managers with particular expertise in a specific country or region come into their own,” Mitul Patel, manager of Asia research at Preqin, tells AsianInvestor.
“These more local investors may actually rather tie their commitment into a more focused, niche fund that allocates exactly where the LP wants their capital to go with a more specific and targeted strategy,” says Patel.