Private equity firms have significantly shifted their Asian focus from once-revered India toward Southeast Asia, according to a survey by Ernst & Young and Mergermarket that polled a total of 100 GPs, LPs and financial advisors.
The survey results showed 85 percent of private equity professionals expect activity to expand in Southeast Asia during the next 12 months
By comparison, only 71 percent of respondents believe activity will increase in India. China was overwhelmingly the most popular, with 92 percent of respondents saying China will be the number one most active market during 2013 for fund managers.
A heightened interest from institutional investors is one key reason for the change in geographic emphasis, Luke Pais, M&A leader for ASEAN countries at E&Y explained.
“Historically, China and India have been high on limited partners’ radars, but increasingly we are seeing a shift in investment strategy and a recognition of Southeast Asia as a destination for that shift,” he said.
Southeast Asia was also hailed as the “least challenging” economy in terms of making acquisitions by 43 percent of respondents – more than any other Asian market.
Indonesia, Vietnam, Thailand and Singapore are key focuses for firms in the region. Malaysia was also highlighted as an easy place to invest.
Preman Menon, senior executive at E&Y said, “With a high level of sophistication, a transparent regulatory environment, and low barriers to entry, Malaysia is one of the easier destinations for private equity investors outside of Singapore.”
However, despite its increased significance, China is overwhelmingly still the most popular market for private equity firms in Asia.
“China is now the priority for many global firms, and China will lead the private equity activity not only in Asia, but even globally. The positive macroeconomic environment of China and its high growth rate are difficult to ignore,” an anonymous investment banker was quoted as saying in the report.
However, a slowing growth rate, a mismatch in buyers and sellers valuation expectations, as well as a continued unwillingness by entrepreneurs to give up management control are key challenges for private equity in China, the report said.