Asia-Pacific private capital fundraising could hit decade-low in 2023: Preqin
ASIA-PACIFIC (Apac) private capital fundraising could hit its lowest level in a decade this year, as general sentiment moves away from China-focused private capital funds, a report by data platform Preqin indicated.
While Apac fundraising in Q2 increased marginally from Q1, largely driven by private equity (PE) and real estate funds, the total for the first half of 2023 is only 22 per cent of the funds raised last year.
Preqin said PE fundraising by Apac-focused funds remained weak in Q2 at US$5.6 billion, even though it was more than twice the US$2.7 billion low recorded in the previous quarter.
At the end of Q2, China-focused PE assets under management shrank marginally for the first time in at least five years. The aggregate capital targeted by China-focused funds declined to US$115.9 billion, from US$141.9 billion at the end of Q1.
As China-focused funds attracted less capital, Asia regional funds took a bigger market share, amounting to 40 per cent of Q2’s total or US$2.2 billion. Japan led the PE buyout activity for the half year, with Japan-focused fund Advantage Partners raising almost US$1 billion.
Overall, PE-backed deal activity in Apac continued to dwindle, as total deal value fell by 38.2 per cent to US$20.1 billion in Q2 from the previous quarter.
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Deal value in Greater China fell to a post-pandemic quarterly low of US$3.4 billion in Q2, a 55.8 per cent decrease from the previous quarter.
Japan’s PE dealmaking topped the Apac region for two consecutive quarters, as the market is often seen as having lower risk, and offering relatively stable returns. The country recorded deal value of US$6.8 billion in Q2.
A weak exit environment for PE continued in Apac, despite an increase in exit value to S$8 billion from US$5.6 billion in the first quarter. Preqin noted that this aligned with the weaker deal environment globally and showed “still-cautious” overall market sentiment.
Similarly, venture capital (VC) fundraising in Apac fell more than in other regions to a five-year low of US$4.5 billion in Q2. China-focused funds made up most of it, raising US$2.7 billion in Q2 – a decline of 54.2 per cent from Q1.
Singapore-focused funds raised about US$1 billion in VC funds during the first half of the year.
VC deal activity in Apac continued its fall in Q2, as total deal value decreased by 12 per cent from the previous quarter to US$24.8 billion. Deal value for the first half of the year fell 34 per cent year on year, compared to North America, where activity halved.
Preqin is pessimistic about Apac’s fundraising outlook due to continuing economic uncertainties and geopolitical tensions, as well as low likelihood of investors’ funds returning to China in significant numbers.
However, it believes that the weakened deal activity is “relatively resilient” compared to other global regions, supported by a variety of opportunities in Apac’s emerging and developed markets.
Nonetheless, Preqin still sees the Chinese economy as “holding the key to a full recovery in the region, with its broad range of investment opportunities and deep capital markets, and significant influence as the top trading partner for many Apac countries”.
The data platform believes that opportunities for private investors could emerge amid a stronger focus on advanced technologies across the Asia-Pacific, given the intensifying US-China technology race. This could result in more investments along these value chains.
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