Asia-Pacific private equity markets have had a tougher time of it than most lately, with a confluence of factors prompting some international investors to reallocate closer to home.
Though LP concerns are unlikely to be resolved overnight, there are reasons for some in the region to be cautiously optimistic about the year ahead.
Tailwinds for South and Southeast Asia
With China continuing to see muted activity in 2024, LPs with an existing and ongoing allocation to Asia-Pacific are seeking a home for their capital in other high-growth markets, such as India and Southeast Asia.
“Allocations overall to APAC have not dropped as much as allocations to China, which has left capital searching for another home in APAC,” Jenny Newmarch, global head of private equity at Aware Super, tells Private Equity International.
Increased global appetites for India are driving larger fundraises and the development of a domestic buyout market. “It is the fastest growing major economy in the world with GDP growth of nearly 8 percent last year,” says Jean Salata, head of Private Capital Asia at EQT. “Looking ahead, India’s economy has the potential to double in size over the next five to six years… in many ways, India today reminds me of China about 20 years ago.”
Possible tariffs under the incoming Trump administration could influence the Asia-Pacific supply chain, in turn driving investment activity and renewed LP appetites for Southeast Asia, in particular.
“Select managers may achieve fundraising success, as certain capital sources are inclined toward developmental support,” says Niklas Amundsson, a Hong Kong-based partner at placement firm Monument Group. “Both the Philippines and Thailand show growing private equity ecosystems and have successful homegrown managers that will be in the market in 2025.”
The region is not without its difficulties: those eyeing the region must consider an inconsistent exit environment, dealflow hurdles and a fragmented cultural and legal landscape, as PEI explored in its November Deep Dive.
“Southeast Asia presents significant fundraising challenges, second only to China,” says Amundsson. “The region experienced momentum in VC and growth sectors during covid-19, but as global tech valuations declined and IPO markets stalled, exits have been limited, making investors hesitant to reinvest. Additionally, several unsuccessful continuation vehicles have eroded confidence in alternative exit strategies.”
Still, an expanding pool of buyers emerging in the region could build help M&A activity rebuild momentum. These include Middle Eastern parties such as Abu Dhabi Investment Authority and Mubadala, both of which are actively seeking to build their corporate profile in Asia, according to Mark Webster, a Singapore-based managing director and partner at investment banking advisory BDA Partners.
“As we’re getting towards the end of 2024 and going into 2025, there’s now more of an appetite to go for the market-clearing type approach, which speaks to sellers’ own confidence that they’re seeing a wider pool of buyers out there coming back in.”
Destination: East Asia?
Next year could see yet more alternatives managers launching new offices in East Asia.
The trend has already gathered momentum of late. Apollo Global Management launched a Seoul office in November, tapping Jay Hyun Lee, a former senior executive vice-president for Samsung Securities, as head of Korea. It followed the example of US mid-market specialist Northleaf Capital Partners, which launched there in September.
Such is the appeal of South Korea’s institutional investor landscape that some alternatives managers have doubled down on the market. Blackstone is among those reportedly planning to open a second local office, this time close to the headquarters of the National Pension Service of Korea in Jeonju.
Tokyo, too, has seen an influx of GPs, with mid-market specialists Eurazeo and New Mountain Capital among those establishing a foothold there last year.
It comes as East Asian LPs seek to build and, increasingly, diversify their private markets portfolios into niche strategies, markets or segments.
“Many of the private credit firms opening office in Korea was/is largely driven by the preference and requirement from some LPs for them to have local presence and local language capability and local supporting team,” says Jackson Chan, chief executive and co-founder of GP advisory Thrive Alternatives. “In certain cases, it wasn’t even an option in order to win that ticket.”
Though the mid-market firms launching in South Korea to date have been predominantly credit-focused, it’s not outside the realms of possibility that private equity firms could soon follow suit. After all, NPS became something of a pioneer among Korean LPs in launching dedicated continuation fund and GP stakes teams last year. The institution is seen as something of a bellwether for domestic institutional investors and desire to climb the risk curve could well inspire imitators.
“I have not really heard or seen [if] many mid-market buyout firms are doing the same yet, mostly because it is still the larger LPs are investing in mid-market buyout funds in Korea and they typically don’t necessary requirement a local office, and it is not yet economical for many mid-market funds to do so given the level of demand,” says Chan.
“But I do expect this can be a trend in the future when more and more Korean LPs outside of the large ones start to invest more into mid-market buyouts, when this become more economical for the GPs or when it becomes a requirement in order to win the mandate.”
New pockets of secondaries
The ongoing maturation of Asia-Pacific private equity markets inevitably brings with it an increasing need for liquidity.
India saw a landmark continuation fund deal in April with ChrysCapital closing a roughly $700 million CV backed by HarbourVest Partners and LGT Capital Partners. The transaction, which involved a stake in the National Stock Exchange of India, is understood to have been 2x oversubscribed.
“India has been a key driver in the region and is expected to continue its growth trend,” says Dennis Kwan, managing director private capital advisory, Asia at Jefferies. “India’s vibrant startup ecosystem, particularly in technology, fintech, and SaaS, will fuel venture capital secondaries, as unicorns and late-stage start-ups attract secondary transactions and early investors look to exit.”
Despite the challenge of scaling companies across fragmented markets and valuation concerns, Southeast Asia is also well set up for a surge in activity, Kwan adds, citing a more established community of funds and assets becoming available for secondaries transactions.
To date, however, volumes have been lower than expected, Kwan notes. “Multiple Southeast Asia-based GPs have explored continuation vehicles in the past 12 months, but few have succeeded.”
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