Record $477b cash pile could hurt Asia PE returns

Dry powder targeting Asia Pacific assets hit a peak last year, which has fuelled private equity investor concerns over high valuations, finds a Bain & Company report.
Record $477b cash pile could hurt Asia PE returns

Asia-focused private equity managers have various worries, but their biggest right now relates to high asset prices – and for good reason.

Although fundraising for Asia Pacific strategies slumped again last year, the amount of capital seeking investments in the region hit a record high of $477 billion (see figure 1 below). That will only intensify competition for deals, push up asset valuations and thereby reduce return potential.

These were among the findings of Bain & Company’s 2021 Asia Pacific private equity survey released today. It was conducted in December and surveyed 162 market practitioners.

“Public markets bounced back quickly following the initial shock of Covid-19, helping support valuations. At the same time, record levels of dry powder increased competition for good deals,” Bain said.

Asia Pacific-focused PE managers “felt the effects quickly”. Four in 10 said that valuations increased in 2020, and “high valuation expectations” represent their top concern (see figure 2 below). Nearly three-quarters expect prices to stay the same or increase in the next two years.

Figure 1: Record private equity dry powder in 2020
(Click for full view)

This could further dampen the performance of managers' strategies, which held up well last year despite the widespread disruption. The median net internal rate of return (IRR) was 12.4%, up from 12.3% in 2019. Morever, some 70% of GPs expect returns to remain steady or increase in the next three to five years.

Admittedly, investor optimism is rising as Asia recovers more quickly from the Covid-19 outbreak than elsewhere. Nearly 80% of survey respondents expect the macroeconomic climate to be more favourable this year.

“But even when the pandemic starts to ease, many challenges will remain, including geopolitical tensions, the US-China trade dispute, climate change and other uncertainties,” the Bain report said.

“Anticipating tougher export conditions or even supply chain disruptions, many GPs [general partners] are stepping up efforts to develop domestic markets and domestic demand.”

Last year’s crisis “sounded a wake-up call” for PE managers, added the report, leading many to review their exposure to a range of risks and invest to increase the resilience of their portfolio companies.


The impact of Covid on deal exits and fundraising was particularly severe for Asia Pacific-focused GPs.

After peaking at $248 billion in 2017, capital raising for the region has steadily dropped every year, with $90 billion of funds closing last year, down 32% from $133 billion in 2019. That compares to a decline of just 11% in global fundraising last year.

Asia Pacific exit deal values, meanwhile, totalled $70 billion in 2020, down 24% year-on-year and 40% from the preceding five-year average, as managers awaited better selling conditions. Secondary sales and trade deals suffered in particular, while IPOs accounted for some 60% of exits, almost double the previous five-year average.

Figure 2: Key private equity manager concerns 
(Click for full view)

The unfavourable exit environment and uncertainty prompted by Covid-19 affected the overall pace of fundraising, said the report. “It was a particularly challenging year for funds with fewer long-term LP [limited partner, or investor client] relationships and those with a limited track record or none at all.”

Most GPs that launched new funds had a strong performance record and offered investors greater differentiation, such as sector specialisation, Bain said.

Still, Asia-Pacific fundraising is likely to bounce back this year, as efforts delayed last year move ahead, the report added.


A brighter spot for the industry in 2020 was the rebound in Asia Pacific deal value to a record $185 billion, up 19% over 2019 and 23% over the preceding five-year average. Growth transactions contributed 60% of the total.

Sector-wise, internet/technology accounted for the biggest chunk, with 42%. Geographic activity was led by Greater China, which accounted for $97 billion of deal value, while India was a distant second with $38 billion.

In response to the challenging market conditions, the trend for club deals also accelerated as investors sought to make the most of their complementary expertise and resources, and to reduce risk, Bain noted. The number of investors per deal increased to a record 3.4, buoyed by growth deals, which averaged 3.9, up 25% from the prior five-year average.

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