Bears spotted in APAC private equity

Private equity professionals in Asia-Pacific are significantly more bearish than their international peers, new research has found.

Fourteen percent of global professionals expect private equity activity to deteriorate over the next 12 months, compared with only 1 percent last year, according to S&P Global Market Intelligence’s 2018 Private Equity Survey. The report surveyed more than 1,000 professionals during November and December, of which 53 percent were senior-level.

Asia-Pacific professionals – 17 percent of the survey sample – were most bearish, accounting for 44 percent of negative responses. Those in EMEA and North America – together making up around two-thirds of the sample – accounted for 26 percent and 17 percent, respectively.

More than 70 percent of Asia-Pacific respondents identified changes in the economic environment as the largest threat to portfolio companies. Protectionism was also identified as a risk, with countries such as Germany among those clamping down on foreign direct investment from Chinese firms.

The Trump administration’s trade tensions with China will have played no small role in declining sentiment. Allianz Capital Partners, an in-house alternative investment manager for the German insurance giant, last month warned that private equity firms raising capital for China-focused vehicles could face headwinds this year.

Willa Hong, a director at the firm, told PEI it expects fundraising to be slower than in previous years as LPs “look to rationalise” their China allocations across all PE strategies due to China-US trade tensions and slowing growth.

A decline in activity is at odds with the mountain of capital waiting to be deployed in Asia. Funds dedicated to the region collected $56.6 billion last year, compared with $37.7 billion in 2017, according to PEI data. China-focused funds raised $22.8 billion last year, the highest amount raised since 2015’s $13.3 billion.

And there could be more to come. Warburg Pincus is set to return to market seeking up to $4 billion for Warburg China Fund II, which will invest alongside the firm’s flagship fund to give it up to $8 billion to invest in the country, PEI reported in November. KKR is looking to deploy bigger pools of capital in Asia in 2019, calling the region its “first priority” for the year.