Last year, private equity investment in Asia was at the lowest it has been since 2008, totaling only $35.6 billion for the entire year – a 43 percent drop from total deal value in 2011, $62.4 billion, according to a recent study from S&P Capital IQ.
Deal volume was slightly better, but still a 29 percent drop year-on-year from 2011, to 602 deals from 848 deals.
Venture capital in Asia, however, is telling a different story. It showed a very slight increase year-on-year, to $23.1 billion across 674 deals compared to $22.9 billion across 921 deals, according to the report. The average deal value for venture capital has made a 38 percent jump year-on-year, to $34.3 million from $24.9 million.
“I’ve observed that venture capital and private equity have an inverse trend: once private equity is at its booming stage, venture capital starts to pick up,” Ben Soong, private equity leader at S+P Capital IQ, told Private Equity International.
He believes that relationship will play out in the next few years. Private equity in Asia hit a peak in 2011, and Soong expects 2013 to be a continuation of 2012’s downward trend. Venture capital, on the other hand, will continue to remain strong – in fact, Soong believes it is on the upswing right now.
There are a number of macroeconomic reasons for the trends in both these asset classes, Soong said, but the biggest one is an increase in cross-border investment. Following the European sovereign debt crisis, valuations in Europe and the US have become much lower, and thus private equity firms are choosing to focus on those regions now.
In addition, the demand for international brands has increased in Asia. Consumers prefer the higher profile Western brands rather than local company brands. Thus, Soong said, many local and global private equity firms have found it more beneficial to make acquisitions abroad and bring them into Asia.
“We’re going to see a lot more money flowing outwards,” he said.