Appetite for private equity opportunities in Asia Pacific continues to grow, with the industry setting a new record in 2021. Economic growth across the region in the wake of Covid-19 led to robust deals that spurred investment value to $296bn.
These were the key findings from Bain & Company’s (Bain’s) 2022 Asia Pacific Private Equity Report.
“It was a remarkable year for private equity in Asia, with the industry being propelled to new highs, despite the impact of Covid and other macro headwinds. The region showed a strong recovery and a sharp rise, with every country recording record results,” said Kiki Yang, co-head of Bain’s APAC private equity practice.
According to Lars Verheyen, Bain partner and co-author of the report, this is a testament to the region’s strength and continued place of growth, innovation and opportunity.
At the same time, the growth of private equity firms in Asia adds to the competition for attractive assets. As a result, Verheyen said it is becoming increasingly important to leverage an integrated diligence approach that identifies the value creation opportunities as early as possible.
Uncertainty in the global economy also places ever-more importance on investors as well as funds continuing to focus on a holistic approach to identify the most viable path to value creation, added Yang, along with attention to critical value levers such as ESG.
Focused deal activity
Asia Pacific’s share of global AUM in private equity rose to 30% as of the end of 2021. At the same time, the amount of dry powder (committed yet unallocated capital) in the region reached a new high of over $650bn, said the Bain report.
Deal activity in 2021 was rife in Japan, South-east Asia and South Korea – more than doubling compared with 2020.
Meanwhile, Greater China and India represented 43% and 20% of total deal value, respectively, in Asia Pacific But breaking with the pattern in previous years, India grew faster than China in 2021, increasing its share of the overall market.
By sector, investor demand for internet and tech companies remained strong, contributing nearly half (48%) of total deal value.
Also according to Bain, exits rebounded in 2021, after two years of sharp declines. Total exit value for Asia Pacific more than doubled to reach $172bn, led by IPOs.
ESG: making an impact
There is also heightened awareness among general partners (GPs) in the region to build ESG principles into their funds’ investment strategy, in line with efforts by governments and regulators to raise the bar on corporate transparency.
For example, Bain’s survey of Asia Pacific GPs shows that 57% plan to increase their ESG effort significantly in the next three to five years, compared with 41% in 2020 and 30% in 2019.
This is also fuelled by the belief among limited partners that incorporating ESG criteria into a fund’s investment strategy improves its performance.
“The importance of ESG to the private equity industry can’t be stressed enough as it is now at the core of most fund’s investment strategy, and rightly so,” explained Elsa Sit, Bain private equity vice president and co-author of the report.
“Moving forward, we suggest investors to think about incorporating ESG to the full investment life cycle to operate, invest and own better.”
