Press release

Private equity in Asia Pacific breaks out of a three-year slump to deliver a strong rebound in deal value and exits

Private equity in Asia Pacific breaks out of a three-year slump to deliver a strong rebound in deal value and exits

Private equity in Asia Pacific breaks out of a three-year slump to deliver a strong rebound in deal value and exits

  • April 06, 2015
  • min read

Press release

Private equity in Asia Pacific breaks out of a three-year slump to deliver a strong rebound in deal value and exits



Even as private equity investors bask in the industry's growth across the region, market maturity casts a shadow over their ability to generate superior returns in the long-term

Singapore – April 6, 2015 – Across the board, private equity (PE) activity took off in Asia Pacific in 2014, posting its best performance to date.  According to Bain & Company's Asia Pacific Private Equity Report 2015, deal value soared to a new record of $81 billion – up from just $50 billion in 2013, as firms found new ways to put dry powder to work – with Greater China leading the charge – and exit activity surged by 118 percent to a new, all-time record of $111 billion after a three-year backslide.  However, the positive momentum cuts both ways as an increasingly mature industry in the region will intensify competition for deals, meaning PE investors, or general partners (GPs), will have to work harder and be increasingly creative to sustain this positive momentum in the future.

Since 2011, when the region slipped into an economic slump, the PE industry's recovery has hinged on GPs finding a way to return more capital to investors and steadily improving returns on investments.  In 2014, the market signaled it could be hitting its stride on both fronts.  Bain found that limited partners (LPs) became cash flow positive for the first time in Asia Pacific and got back almost $1.2 for each dollar called by GPs – evidence that investors' returns finally topped their initial commitments.  Additionally, LPs' patience was finally rewarded as median returns rose from nearly 9 percent to 11 percent between late 2012 and June 2014 and those for top quartile funds hit 19 percent.

"Last year proved to LPs why their faith in the Asia Pacific market was warranted, but now the hard work begins," said Suvir Varma, head of Bain's Private Equity practice in Asia-Pacific and co-author of the report. "As the industry emerges from recent economic volatility, PE firms are striving to realize full value from their portfolios and build sustainable performance, which will go a long way to helping them deliver above-market performance against the backdrop of a winner-take-all environment." 

Bain conducted a survey of 145 senior regional PE executives and found that even as optimism increases across the region, investors cannot ignore that the table stakes continue to rise as the industry matures and becomes more competitive.

Opportunities abound in Asia Pacific

Bain's analysis reveals several important distinctions that suggest PE in the region is transitioning from a hopeful, speculative market to one rooted in strong, sustainable portfolios:

  • Healthier portfolios. More robust exit activity slowed the growth of unrealized value to 1 percent, compared to 30 percent annual growth from 2009 to 2013, and helped scrub portfolios of old deals; 
  • A push for more control. As GPs whittle down their exposure to older, less attractive deals, Bain's survey found that nearly 60 percent of regional GPs said they are seeking ‘path-to-control' mechanisms so they can participate more fully in value-creation strategies and decision-making;
  • Fewer, but stronger, GPs. The shake-out of the weakest Asia Pacific funds continued in 2014 with money-losing funds making up only 15 percent of the total fund value on the market – down from nearly half in 2011;
  • More openness, more opportunities. A greater set of PE opportunities is expected as owners throughout the region have become more and more comfortable with taking on PE firms as trusted partners, opening more opportunities for GPs to gain access to proprietary deals or negotiate greater control over decision-making;
  • Strong investor commitment. Asia Pacific's growth profile remains a magnet for investors looking for emerging market diversification. Data gathered by the Emerging Markets Private Equity Association (EMPEA) shows that 47 percent of LPs want to push their PE allocation above 16 percent by 2016, compared to 35 percent in 2014;

Challenges on the horizon

Bain highlights several of the key challenges standing in between the Asia Pacific PE industry and long-term, sustainable growth:

  • Compressing returns for the PE industry, as the spread between the top- and bottom-performing funds has narrowed for recent fund vintages. Swings in just one or two deals can push a fund out of one quartile and into another. Bain found that it is only after around the seventh year in a fund's life that investors can have confidence in knowing where a fund will ultimately end up;
  • Sustained exit momentum, arguably the industry's most important task in the coming year, hinges on the degree of equity market volatility.  Greater China, Japan and Australia have accounted for 90 percent of the region's IPO value and more than 80 percent of transaction volume over the past five years.  These markets had strong exit volume in 2014, supported by high public valuations and GPs eager to pare down large exit overhangs so they could attract new capital.  But, as always, Bain advises that predicting the direction of equity markets can be tricky;
  • Manageable competition and pricing.  With the world awash in cheap capital and buyers of all types on the hunt for investments, it is unlikely that global competition for deals will ease anytime soon.  In the Asia Pacific region, where $132 billion of available capital – or dry powder – represents 2.3 years of future investment, there is still a lot of money chasing few deals.  Bain believes continued competition and growing pressure to invest will prevent valuations from decreasing.

With the days of simply putting as much money to work as possible coming to a quick end, GPs in 2015 will seek creative ways to sustain their newfound momentum across Asia Pacific.  As investors become increasingly more selective, PE firms will become more involved with their portfolio companies, making full use of operational changes, talent selection, M&A and capital efficiency to increase their bottom line performance.  A "good buy" is still a prerequisite for any successful deal, but generating market-beating returns in today's environment increasingly means turning good buys into great ones.

Diverse markets, diverse outlook

The PE market is showing stronger signs of life across many of Asia Pacific's geographies, but clear differences also persist:

  • Greater China: Breakout level of activity, but for how long? –  The region's biggest market came back to life in 2014, with deal values exceeding $40 billion – 33 percent higher than the market's peak in 2011 – and individual deals exceeding the market's five-year average by 30 percent at 350.  Exit value also exploded behind Alibaba's $25 billion IPO, surging to $61 billion, more than triple 2013's value.  Looking ahead to 2015, GPs remain optimistic, even as China economy slows; however, according to Bain's research, only 40 percent of them expect growth to exceed 10 percent. 
  • India: Growing optimism after a difficult year – Overall, PE activity held up well in a year when business activity froze in anticipation of the country's general elections.  A few big deals boosted investment value to $11.4 billion – a 10 percent bump from 2013 and well above the $7.6 billion five-year average.  Exits faltered with none over $400 million, as the majority of Indian GPs are hesitant to exit investments from pre-2008 vintages at a discount.  The market is hopeful that Modi's government will unlock greater economic growth, which could encourage more exits and return more capital to investors
  • Southeast Asia:  Still waiting for a breakthrough – Investors who piled money into the region in hopes of diversifying are still waiting for a payout.  GPs managed to nudge investment value to $5.9 billion – just slightly higher than the previous year – but worked overtime to find exits.  Exit value slid to $4.4 billion, the worst showing in nine years.  Despite all this, Bain found one-third of GPs said they believe local companies have a good understanding of PE value proposition, compared to 5 percent a year ago, which could mean a deeper pool of potential targets.
  • South Korea: Another great year – Two major deals – Hahn & Co.'s buyout of Hall Visteon Climate Control, and Carlyle's purchase of ADT Caps – pushed investment value past $10 billion for the first time ever.  Exits, both in terms of value and deal count, also reached all-time record highs.  The country's positive momentum could be its undoing as greater competition will drive up prices.  Still, GPs are unanimously confident about future deal activity – more than 60 percent expect growth could top 10 percent.
  • JapanImproving economic conditions in a mature PE market – Japan turned in mixed results in 2014:  deal value trended below the country's $6-8 billion historical average, but exit value soared to an all-time high of $18 billion.  According to Bain's survey, GPs remain optimistic that deal activity will improve with almost 60 percent claiming that growth could be as high as 10-25 percent.
  • Australia: Strong exits, but subdued buyout activity – Exits set all-time records in value and volume.  Exit value climbed to $14 billion, more than twice the five-year average.  Total investment value and activity bested 2013 levels, but were on par with five-year averages, with a slump in buyout activity.  While economists predict a slight dip in the country's GDP, GPs are not deterred.  Since more were able to secure new funds after realizing exits in 2014, they will have a ready pool of capital to look for more growth opportunities and buyouts. 

To arrange an interview with Mr. Varma, contact:  Dan Pinkney at or +1 646 562 8102

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