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Opportunities in Transition: An Overview of the Asian Private Equity Market

As a part of our Approachable Asia podcast series, we are pleased to offer our perspective on the evolving Asian private equity market and how investors can identify opportunities.  



For more than a decade, above-average real GDP growth rates have fueled interest from private equity investors in Asia. In fact, since 2013, Asian-focused private equity funds have raised more than $900 billion (USD) of capital.1

The two strategies that dominate Asian PE fundraising are venture and growth equity; roughly 77% of aggregate capital raised in 2019 was for venture and growth equity strategies.2

Recently there have been concerns from limited partners around heightened geopolitical risks, the global pandemic, slow distributions, and lower growth rates. Capital continues to flow into the region, but investors are more selective about the general partners they choose to work with. Commitments are increasingly becoming concentrated among the larger “brand name” funds, many of which have become oversubscribed.

1, 2 Asia Venture Capital Journal (AVCJ)



Asia’s economic transition from emerging geography to major market player is not new news. For more than a decade, the future growth prospects in Asia have far exceeded those of developed markets in Europe and the US. Countries in the region have consistently generated above average real gross domestic product (GDP) growth rates. In 2020, the World Economic Forum forecasts that Asia's GDP will overtake the GDP of the rest of the world combined. By 2030, the region is expected to contribute nearly 60% of global growth.



Data Source: International Monetary Fund (IMF) World Economic Outlook (October 2020)



Data Source: International Monetary Fund (IMF) World Economic Outlook (October 2020)



Data Sources: International Monetary Fund (IMF) World Economic Outlook (October 2020), Fund Evaluation Group (FEG)



Despite impressive growth in funds raised in the past few years, private equity markets in Asia are still at relatively low levels of penetration compared to the U.S. and the European Union.



Data Sources: UBS, Dealogic, The Economist Intelligence Unit; Data as of December 2019
Note: United States (U.S.); Association of South East Asian Nations (ASEAN)



In 2019, Asian-focused private equity funds raised roughly $118 billion (USD); however, fundraising in the region has been negatively impacted by the global pandemic and geopolitical tensions. Capital has become quite concentrated among larger “brand name funds” and the fundraising data underscores an overall ongoing flight to quality.



Data Source: Asia Venture Capital Journal (AVCJ); Data as of June 30, 2020
Note: Greater China includes China, Hong Kong, and Taiwan; Southeast Asia (SEA); Australia / New Zealand (NZ)



Data Source: Asia Venture Capital Journal (AVCJ); Data as of June 30, 2020



Roughly $165 billion (USD) of private equity invested was allocated to Asia in 2019, with Greater China serving as the top private equity investment destination. Data from the first half of 2020 indicated year-over-year private equity transaction volume grew in both China (59%) and India (19%), while both South Korea and Japan have seen a decline in equity investment activity.

Dry powder levels in Asia have slowly accumulated in recent years, however, limited fundraising activity due to COVID-19 and lowered LP risk appetite is likely to reduce dry powder levels.

Prices in the Asia-Pacific region remain elevated, with increased competition across the region and soaring valuations in technology sectors sustaining M&A multiples.

Early stage venture valuations remain relatively low; Series B valuations continue an upward trajectory; Series C and later stage entry valuations have seen a significant uptick in valuation.

Median Net Internal Rate of Return (IRR) and Total Value to Paid-In (TVPI) ratios in Asia have been volatile, but recent vintages are performing well. The spread between top quartile and bottom quartile performance remains large. Manager selection is paramount in seeking top quartile returns.



Data Source: Thomson One; Data as of March 31, 2020.
Includes Buyout & Growth Equity, Venture Capital



Data Source: Thomson One; Data as of March 31, 2020.
Includes Buyout & Growth Equity, Venture Capital


Distributions from seasoned Asian PE funds have not met limited partner expectations. Median Distribution to Paid-In (DPI) ratios consistently lag those of other regions. As of March 31, 2020, the median distribution to paid-in (DPI) ratio for a 2009 vintage, Asian focused private equity fund was 0.7x. For comparison, the median DPI ratios in Europe and the US were 1.4x and 1.5x respectively.



Data Source: Thomson One; Data as of March 31, 2020
Includes Buyout & Growth Equity, Venture Capital



Data Source: Thomson One; Data as of March 31, 2020
Includes Buyout & Growth Equity, Venture Capital



Although there are clear challenges to Asia’s economic rise (e.g., financial risk, growing inequality, rule of law and corruption, trade disputes), Asian private equity stands to benefit from both long-term structural changes (e.g., demographic, regulatory) and near-term macroeconomic transitions (e.g., price dislocations, liquidity concerns). Private equity will undoubtedly continue to play a large role in Asia going forward, and we believe that LPs may find success backing GPs who can provide sector-focused expertise in growing local businesses.





This report was prepared by FEG (also known as Fund Evaluation Group, LLC), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directly to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department.

The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information in this report is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it. FEG, its affiliates, directors, officers, employees, employee benefit programs and client accounts may have a long position in any securities of issuers discussed in this report.

Neither the information nor any opinion expressed in this report constitutes an offer, or an invitation to make an offer, to buy or sell any securities.

Past performance is not indicative of future results.

This report is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may receive this report.

Published November 2020 



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