KKR: ‘Invest behind the rise of Asian millennials’

The Asian millennial generation, particularly the Chinese, will reshape traditional consumer markets in the country, as well as around the globe, according to a macro insights report from the New York-headquartered private equity firm KKR.

In the report titled China: A Visit to the Epicenter, KKR has estimated Asia is home to 828 million millennials, compared with 66 million in the US. The Pew Research Center describes millennials as anyone born between 1981 and 1996 (ages 22 to 37 in 2018).

According to the report, 40 percent or 330 million of the Asian millennials are Chinese and form the bulk of the country’s labour force. More importantly, this cohort is entering middle income status, which will result in important shifts in buyer behaviour patterns.

Against this backdrop, Henry McVey, head of global macro and asset allocation at KKR and co-author of the report, said: “Personal financial services, healthcare services, wellness/beauty, healthier foods, and food safety should also be major beneficiaries of the environment we are envisioning.”

Continued demand for China to tackle air, water and soil pollution will also create opportunities for companies that address these issues, McVey added.

The Chinese consumer is also becoming increasingly sophisticated and tech-savvy, which is “leading to a more demanding customer who uses technology more often to drive value, select aspirational brands over standardized ones, and comparison shops more often than in the past,” the report noted.

McVey said, however, that it is not business as usual in China as the country faces extraordinary pressures to resolve heightened trade tensions with the US as well as a massive societal change.

He wrote: “Overall, we believe that the current trade wars with the US will only accelerate China’s shift away from an export economy dependent on global trade/flows towards a more self-reliant consumer services economy that is gaining prominence, particularly within Asia. This is also creating opportunity for more corporate carve-outs, as a growing number of chief executives rethink what is really core to their Asian footprint, including distribution centres, supply chains, and capital equipment.”

China is a core focus within KKR’s Asia Pacific strategy. The firm has invested more than $4 billion as of end-June 2018 in the Greater China market across its private equity business. Its current portfolio includes COFCO Meat, Cue & Co, Fujian Sunner Development, Qingdao Haier and Suishou Technology. A portion of KKR’s third pan-Asia buyout fund, the region’s largest fund for which KKR raised $9.3 billion last year, is also being invested in China. Capital from the Asian Fund III will be invested in companies focused on Asia’s rising urbanisation and consumption trends, environmental initiatives, and food and agriculture sector. The firm will also look to invest the fund in corporate carve-outs in North Asia and cross-border partnerships.