Asia's private equity market now equals those of Europe and the US in terms of size, accounting for a third of all funds invested, according to a report released by Swiss fund of funds manager Adveq.
It attributes this mainly to the rapid growth of the Chinese private equity market, which has attracted the attention of institutional investors worldwide. The country accounted for 29 percent of all private equity investments made in Asia in 2008, up from just 8 percent in 2005. Its share of investments is expected to increase further this year to one third of all transactions, Adveq noted.
We believe the rise of the domestic private equity market in China, combined with an increasingly favourable regulatory environment, will continue to encourage foreign institutional investment into China.
“China is expected to continue to lead the development of the Asian private equity market and we believe that the rise of the domestic private equity market in China, combined with an increasingly favourable regulatory environment, will continue to encourage foreign institutional investment into China,” commented Bruno Raschle, chairman and CEO of Adveq.
Currently 1,000 private equity fund managers operate in Asia Pacific, according to Adveq, of which 300 are active in China. There are now enough fund managers in China to enable institutional investors to build a portfolio of “high quality” private equity investments in China, with the potential to provide returns over the long term, according to Darren Wong, managing director and head of Adveq’s Asian investments.
In contrast to the expected growth trajectory of the Asian private equity industry, Adveq predicts Western private equity infrastructure will shrink by about 30 percent over the next few years, with only clearly differentiated and competitively positioned firms likely to be considered by institutional investors.
According to Wong, “many of the products and business strategies being developed in China address buying markets that are in order of magnitude larger than in Europe or North America, providing entrepreneurs, fund managers and investors with a more favourable risk/return profile than anywhere in the world”.
Adveq is currently in the market for its second Asia-focused fund of funds which is targeting commitments of $350 million. By May 2009, the firm had raised more than $61 million for the find. Its debut Asian vehicle closed on more than $200 million in 2007 and is fully committed.
The firm invests in venture capital, development capital and buyout opportunities primarily in India, China, Japan and Australia. Since 1998, the firm has committed to 20 private equity funds in China.