Asia dry powder at record high

Asia Pacific has $131 billion in capital that needs to be put to work, but deal volume and value have been declining.

Dry powder in Asia reached a record level of $131 billion in 2012, enough to finance future deals in the region for the next 2.5 years, according to data from Bain & Co. 

The figure is based on Asia Pacific-focused funds and would be higher if global funds investing in the region were included, according to the firm.

At the same time, Asia Pacific deal activity continues to slide. From January to August 2013, private equity deal value (excluding real estate) fell 20 percent to $12.2 billion compared to the same period the previous year, according to data from Thomson Reuters.

The weak exit environment is likely going to result in life extensions for existing funds. 

Andrew Ostrognai, partner at Debevoise & Plimpton 

Deal volume was down 30 percent to 218.

Wendy Zhu, partner, AlpInvest Partners, agrees that dry powder is high, but says “there’s more concentration of that dry power in fewer mangers than before. This should be helpful for further rationalisation in the market”.

Hugh Dyus, head of Asian private equity at Macquarie Funds Group believes that the dry powder accumulation results from too many fund managers who do not have a track record. 
“The whole Asian private equity industry is too big,” Dyus said. “GPs have been too good at marketing the potential and the story and not good enough at actually executing and distributing cash back to investors.”

“If the industry was smaller, it would be more selective, less competitive and more successful in terms of delivering returns and distributions.”

Andrew Ostrognai, partner at Debevoise & Plimpton in Hong Kong, adds that the weak exit environment is likely going to result in life extensions for existing funds.

“There is a lot more discussion of that, which of course goes back to fees during fund life extensions,” he said. “But the dialogue has started.”

“Dry powder” was part of the discussion at the Asia Roundtable, which will be featured in Private Equity International's October issue.

Asia's dry powder is at record levels

Amount Years*

 2012   $131bn    2.5
 2011  $126bn   2.1
 2010  $101bn   1.9
 2009  $91bn   2.5
 2008  $92bn   2.0
 2007  $70bn   1.0
 2006  $54bn   0.9

*years to invest the amount
Excludes real estate and infrastructure funds
Source: Bain & Co