The Asian private equity market has shaken off the lingering effects of the global financial crisis

Chinta Bhagat, Keiko Honda, Vivek Pandit, Gary Pinshaw, Bruno Roy, Youngwook Yoo

By many measures, 2011 provided long-awaited proof of a rebound in the Asia-Pacific private-equity (PE) business after the protracted downturn of 2008 through 2010. While in the United States and Europe, the industry’s recovery remained muted in the face of debt worries and weak employment data, the Asia-Pacific region’s total PE investment values have returned to 2006 levels, or some $65 billion.

China alone accounted for almost 45 percent of the new activity, indicating that the expansion has not been uniform. But even more mature markets, such as Japan and Australia/ New Zealand, showed some signs of life. On the whole, the region is now in its strongest position since the global economic crisis.

Moreover, although the Asia-Pacific region now accounts for 21 percent of the global PE industry, that level is still lower than its share of global GDP, which has reached 28 percent. The region’s low PE penetration rate also confirms the likelihood of room for further growth.

The nature of the opportunity is changing quickly and will require industry players to develop new flexibility and capabilities. For example, although China continues to show long-term promise, its slowing growth and rising sophistication will create openings very different from those that arose in even the recent past. Throughout Asia, local players are acquiring new skills that make them sharper competitors and more valuable partners. And new frontiers, such as Indonesia, Vietnam, and a rapidly reforming Myanmar are promising rapid growth; whether these countries can keep that promise (which for Myanmar would require further lifting of sanctions) remains in question.

We began our ongoing research on Asia’s PE industry in 2009, with this white paper representing the third edition of our annual “state of the nation.” As in the previous papers, we focused on the six markets that together account for virtually all PE investments in Asia: Australia/New Zealand, Greater China, India, Japan, South Korea, and Southeast Asia. Given the diversity among (and even within) these markets, our goal is not just to validate the data we gather but to refine that data so that the figures are truly comparable and can yield reliable insights for investors.

The first section therefore provides a summary of our review, covering deal volumes and aggregate values, investor nationalities, exits, and fund-raising, both in the aggregate and for each of the six constituent markets. We also include a brief overview of the top Asian deals for 2011, as well as
some of the larger Asia-focused funds raised in the year. In analyzing fund-raising, we recognized the importance of distinguishing between funds raised for a market, regardless of geographic source, and funds raised within a market. For comparisons between Asia and other geographies, we focus on funds raised for Asia from all sources. For comparisons within Asia, our data look to fund-raising within each individual market.

Expanding our work from 2011, we again conducted interviews with leaders from a wide range of global and regional general partners (GPs), as well as local and foreign limited partners (LPs). We then incorporated an analysis based on our experience in serving industry players across the region. The result, detailed in the second chapter, is a series of industry-wide themes, including changing deal structures, maturing secondary markets, questions about China, and the rise of Southeast Asia. Together, these insights can help guide industry players seeking to take full advantage of the market’s promise.

Download the full report here.