Side Letter: Asian PE in 2022; Last-minute fund closes; PE pay pain points

Hello and happy new year! Side Letter is kicking off 2022 with predictions for Asian private equity markets, hefty fund closes you might have missed over the holidays and an exploration into PE pay packets. Here's today's brief, for our valued subscribers only.

They said it

“Are buyers concerned about inflation, rising costs of capital, how stretched valuations are? The answer to all those questions is yes. I think you will see more caution on the part of buyers.”

Joe Baratta, global head of private equity at Blackstone, tells affiliate title Buyouts that 2022 is likely to be a

slower year in terms of dealmaking than its predecessor (registration or subscription required).

Just happened

Asian PE predictions
Last year was a mixed bag for Asian private equity. Some markets, like India and Southeast Asia, thrived amid soaring investor appetites and landmark exits respectively; China, meanwhile, was hit by a series of regulatory actions that forced some GPs to rethink their investment theses and LPs to take a pause on new commitments. So, what next for these markets? This morning, Private Equity International published a series of predictions for Asian PE in 2022. The full article is worth a read, but here are the highlights:

  • Join the club: The number of firms with an Asian PE fund larger than $10 billion (currently two) is likely to rise next year, with the likes of CarlylePAG and Baring Private Equity Asia all targeting, or expected to target, sums reasonably close to that figure.
  • Close but no cigar: Uncertainty around China’s regulatory environment has compounded existing fundraising woes for a number of managers, who may, after two years on the road, expect to close below their initial ambitious targets.
  • Mumbai-ing spree: India’s soaring investment volumes may well reach new heights in 2022, with rising appetites from pan-regional and global firms likely to be bolstered by capital that would otherwise have been earmarked for China.

ICYMI
While some PE executives were no doubt enjoying a well-earned glass of sherry and a mince pie, others appear to have been hard at work wrapping up their fundraises. Here are some notable closes announced in late December that you might have missed:

  • If Chinese PE funds were having a hard time raising capital, no one appears to have told Eastern Bell Capital. The firm, named one of PEI‘s ‘five Chinese GPs you should know‘ in August, raised more than 13 billion yuan ($2 billion; €1.8 billion) across its USD Fund II and RMB Fund VI.
  • Capitalising on rampant LP appetites for growth equity, Permira closed its second Growth Opportunities Fund on $4 billion. The total is well north of its $2.5 billion target and more than double its 2018-vintage predecessor.
  • Southeast Asia’s Northstar Group closed Fund V on $590 million. The vehicle, which launched in 2020, had initially sought $800 million, and is about 27 percent smaller than its 2014-vintage predecessor, according to PEI data.

They did the math

State of play
State-owned investors are getting a little more adventurous when it comes to venture capital. Not only are these institutions becoming highly active, with deal values up 80 percent year-on-year in 2021 to $18.2 billion and the number of deals more than doubling to 328, but they’re also branching out across funding rounds, according to Global SWF’s 2022 Annual Report. SOIs completed 92 Series E+ funding rounds last year, compared with 28 the prior year and nearly triple the 36 completed between 2016 and 2019. Series C and D funding rounds also greatly increased, while Series A declined. Rather than reflecting diminished appetites for early-stage investments, the dynamic was attributed to their increasing willingness to back start-ups through the company lifecycle to IPO stage.

Essentials

Pay(n) points
PE may well be known for its generous pay packets relative to many other industries, but the majority of market participants still feel there is room for improvement. Some 57 percent of PE and VC executives are unhappy with their remuneration, with employee expectations and market conditions cited as the top reasons for dissatisfaction, according to Benchmark Compensation’s 2022 Private Equity VC Compensation Report. For the 36 percent of PE and VC CFOs who were unhappy with their pay, carried interest was the most common pain point. More findings here.


Today’s letter was prepared by Alex Lynn.