India infrastructure funds rise as China PE, VC stumble
The Asia Pacific (APAC) region has witnessed a stark contrast in fundraising trends, with India's infrastructure funds enjoying robust inflows while private equity (PE) and venture capital (VC) face challenges, particularly in China, according to Preqin’s APAC quarterly update report.
The research has found a significant slowdown in the annualised growth rate of APAC alternatives’ assets under management (AUM), from around 30% to 14-15%, signalling a cooling phase in the investment frenzy that previously characterised the region, according to Angela Lai, VP and head of APAC and valuations for research insights at Preqin.
“The slowdown of AUM growth reflects fundraising challenges — in particular, for China-focused funds,” Lai told AsianInvestor.
However, India's infrastructure sector has seen heightened activity from investors who are now prioritising quality over quantity and being more selective with allocations.
INFRA ACTION
India has emerged as the most active country to capitalise on the enthusiasm for infrastructure, largely driven by its government's commitment to improving transport and utilities infrastructure. This has attracted both domestic and international investors, according to Lai.
Preqin
“India has been the most active emerging market for APAC (private capital) infrastructure in recent years due to the high development needs and the participation of private capital,” she said.
The country’s transition towards renewable energy sources is seen as a major driver, with numerous projects in solar and wind energy coming online.
“We see this trend continuing over the coming years with the expected positive growth of the India economy,” said Lai.
DEMAND FOR PRIVATE DEBT
India's market for private debt is the fastest-growing in APAC, driven by a high demand for non-bank financing, especially among small and medium enterprises that find it challenging to secure traditional bank loans, according to Preqin.
“The growth is also supported by the attractiveness of higher yields compared to more developed markets,” said Lai.
Investors are responding positively, as evidenced by increased fund allocations and the launch of India-focused debt funds, indicating a robust outlook for this segment.
BUCKING THE TREND
While the research shows a general downturn in VC deal values across APAC, India has actually experienced an increase in deal volume.
This anomaly can be attributed to India's robust startup ecosystem, which continues to thrive on digital innovation, a large and growing internet user base, and supportive government policies for startups.
“India is the most popular emerging market now, according to our investor surveys, as investors are drawn to the opportunities presented by a diversity of sectors, often in smaller, early-stage investments,” said Lai.
However, this raises questions about the sustainability of high valuations and the potential for market corrections. The broader implications for APAC's VC market include possible shifts in investor focus towards India at the expense of other regions experiencing slowdowns.
“Performance of this market has been favourable so far, although the broader concerns around VC globally may flag some downside risk for India as well, and fundraising has already weakened considerably in the last year,” she said.
CHINA CONTRAST
Conversely, PE and VC funds, particularly those focused on China, have struggled due to stringent pandemic restrictions and a slow economic reopening that dampened investor confidence.
“There has been a changing sentiment towards China, where the largest PE and VC exposures are putting pressure on deal flow, performance, and liquidity,” said Lai.
Moreover, the broader geopolitical tensions and regulatory uncertainties have made investors cautious, leading to reduced liquidity and prolonged exit timelines for existing investments.