Survey: positive outlook for Southeast Asia

An overwhelming majority of private equity managers investing in Southeast Asia expect an uptick in investment activity in the region in 2010 and more than half forecast an increase in LP appetite for Southeast Asia.

Southeast Asia will see increased private equity investment and exit activity in 2010, according to results from a survey of private equity fund managers investing in the region. This is in part because the buyer/seller expectation gap on pricing is narrowing, according to respondents.
Eighty eight percent of respondents to the Southeast Asian Private Equity Confidence Survey 2010 conducted by Deloitte expect investment activity to increase in 2010 and four-fifths of the managers surveyed also expect to see an uptick in exit activity. This is in sharp contrast to the 2009 survey where every single manager participating in the survey expected exit activity to decrease. The change in attitude reflects renewed confidence in the region, according to Deloitte.

“The view is that people’s confidence was lost in 2009 and everyone became very inward, focusing on managing their portfolios or investors,” Heath Snyder, head of private equity for Singapore and Southeast Asia, told PEI Asia. In his view, the positives for Southeast Asia are that the economic recovery in the region has been V-shaped and people are now comfortable as there is good visibility with respect to the region’s economies, going forward. 

“The economic outlook is improving and we are beginning to see some appetite for debt lending coming back,” one respondent said. 

Among the primary reasons for the increase expected in deal activity this year is the view that the gap in pricing expectations will narrow as both vendors and buyers adapt to the changed economic circumstances. Of the respondents, 76 percent believed the gap in pricing expectations will reduce. 

However, 52 percent of respondents offered that entry multiples will increase over the course of the year. “The side effect of people’s confidence increasing is there is more competition for deals and that will push up prices,” Snyder said. Furthermore, private equity pricing is correlated to the stock markets and as the markets have improved, valuations in the private markets will increase as well, he added. 

Managers expect the energy and natural resources sector to see the most investment activity in 2010, followed by the consumer and retail sector. “Natural resources and oil and gas will be the hot spots, with consumer and financial services also increasing in significance,” one respondent said. In terms of geography, managers expect Indonesia and Singapore to witness 60 percent of all investment activity in the region. While Vietnam is seen as an exciting prospect by some managers, it remains a difficult market to penetrate. 

From a fundraising perspective, managers surveyed were less optimistic, with about half of them of the view that the fundraising environment will be more difficult in 2010 and 16 percent of the opinion that it will be just as difficult as it was in 2009. 

This was despite 52 percent of respondents expecting LP appetite for Southeast Asian funds to increase over the next 12 months, a big change from 2009 when 65 percent of managers expected LP appetite for Southeast Asia to decrease. Driving this change in sentiment is the increased interest in Asia vis-à-vis Europe, a ‘back to basics’ approach to private equity in the region and strong domestic markets, according to managers.

Twenty five leading private equity fund managers in the region were interviewed for the survey. These are managers based in Singapore, Indonesia and Vietnam and include large buyout shops investing in the region as well as smaller, local fund managers making early stage and growth investments.