THE Asia-Pacific now represents a quarter of the global private equity (PE) market, hitting a record US$1.2 trillion in assets under management (AUM), according to a Bain & Company report released on Wednesday.
However, despite standing strong as a consistent heavyweight in the global PE space, a hit to dealmaking in China has sharply dragged down the total deal value in the region.
The report noted that deal value in the region had plunged 16 per cent to US$150 billion in 2019, from US$178 billion the year before.
The region’s powerhouse market, China, recorded a 38 per cent drop in deal value in the PE market for the same time period, pulled down by the macro challenges in China - a looming trade war, social unrest and stringent yuan fundraising regulations, Bain analysts said.
In contrast, in all other geographies, investment grew or was on a par with the average of the previous five years.
“Macro conditions have shifted the balance of PE power in Asia-Pacific,” said Kiki Yang, co-author of the report.
“China, while still dominant, has contracted and macro softness was the number one factor that kept PE funds focused on Greater China awake at night,” said Ms Yang, who also co-leads Bain’s Asia-Pacific PE practice.
Exits saw a sharper drop.
After the high of Flipkart’s US$16 billion sale to US retail giant Walmart in 2018, the Asia-Pacific’s exit market plunged, breaking the recycling of capital that will fuel the next investment phase.
Exit values fell 43 per cent year on year to US$85 billion in 2019, and was 31 per cent lower that the preceding five-year average.
More importantly, with the contractions in China, the sharp drops in exits across the region meant that cash flow for limited partners in late 2018 and 2019 was negative for the first time since 2013.
General partners already had trimmed their portfolios in 2018 when exit values hit a record high, but an uncertain macroeconomic outlook, tepid mergers and acquisitions (M&A) activity and an erratic stock market also discouraged funds from pursuing exits.
Larger and experienced funds with a strong track record tend to be able to raise capital with ease, and benefit from a winner-take-all dynamic, leaving “other firms to be even more distinctive and articulate in their strategy”, said Ms Yang.
“The ongoing flight to quality in fund raising continues to polarise the market,” she added.