Apac private equity to face challenges in fundraising, returns 

THE uncertainty around China and waning investor appetite will be challenges that Asia-Pacific (Apac) private equity will face in the coming years, said a report by data platform Preqin released on Wednesday (Dec 13).

Apac private equity raised US$26.7 billion as at Oct 31, or just 5.3 per cent of the US$508.6 billion raised globally. The share of capital raised by Apac has been declining. It fell to 11.2 per cent in 2022, after hitting 20.8 per cent in 2021.

North America continued to dominate fundraising, snagging US$341 billion or 67 per cent of the global total.

In Apac, private equity funds are likely to underperform against other key regions, with a forecast of 9.7 per cent returns from 2022 to 2028. The prolonged economic uncertainty in China and geopolitical tensions have resulted in a more cautious approach towards China by investors.

Cameron Joyce, head of private equity, research insights, Preqin, said: “Private equity is one of the alternative asset classes most impacted by the evolving economic and geopolitical landscape.”

If sentiment does not improve quickly, investors may reduce exposure to China, which could put more pressure on valuations. Coupled with underperforming public equity markets in Apac, which are a key route for private capital exits, this could contribute to a weaker performance outlook in Apac.

Investors are finding that private equity fell short of expectations, according to 28 per cent of 395 investors polled, the largest proportion over the last decade. A majority of investors (59 per cent) felt that private equity met expectations.

In the near term, over half of investors felt the impact of the denominator effect, where one portion of a portfolio decreases dramatically, making the other segments comprise a larger percentage of the total. Only 7 per cent of investors made capital allocation decisions based on the denominator effect as a primary driver, while 26 per cent cited it as a factor.

Investor appetite for private equity dipped, with 18 per cent of investors planning to deploy less capital compared with 13 per cent in November 2022. Over half or 53 per cent of investors are planning to maintain their allocation, compared with 56 per cent a year ago. Similarly, 28 per cent of investors are planning to increase their allocation, compared with 31 per cent previously.

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The decline in China-focused allocations will be felt by the Apac private equity market, with Preqin forecasting an annualised growth rate of about 6.5 per cent through to 2028. While South-east Asia and India should continue to attract long-term investors with growth opportunities, it will take some time before these markets can offset the decline.