Asia dry powder reaches record high

GPs are sitting on $138bn of undeployed capital, while slow distributions leave LPs out of pocket.

Asia Pacific private equity firms are holding records amount of dry powder, with the deal environment remaining highly competitive, according to a recent report by consulting firm Bain & Co.

By the end of 2013, the level of dry powder Asia-wide had reached $138 billion, a 9 percent increase on the $127 billion remaining at the end of 2012, data showed.

The figures are concurrent with those in China, with Asia’s largest private equity market left sitting on about $65 billion in undeployed capital as of the end of 2013 – an increase of about 20 percent from 2012.

With the levels of dry powder rising, competition in the region has remained stiff, GPs say, with over 50 percent of Asia Pacific-based private equity funds believing competition in the region has increased during the two to three years to 2014.

Moreover, the pressure to do deals is building, with 70 percent of respondents answering that closing deals was a top priority in 2014. 

As well as a slowdown in deal making and exits, returns on investment have disappointed, according to the Bain report.

The survey shows that more than 60 percent of LPs expect returns of 16 percent or better from their Asia Pacific investments, however average returns have fallen short of this in recent years, especially for younger vintages. Distributions of capital have fallen well-below contributions, and LPs have been cash-negative in the region for nearly a decade.

“The effort to winnow out these bad assets will be a long slog for many funds, especially given the painfully slow pace of exits in the Asia-Pacific market and the mountain of unrealised value stuck in private equity portfolios. But several factors indicate the process is in its advanced stages, and the market will benefit in the future from a new level of investment discipline,” the report said.