What to expect from Asian private equity in 2022

A host of potential entrants to the double-digit fund club, a raft of fund closes below target and an influx of Indian investment are on the cards in the year ahead.

While no region can fairly claim to have enjoyed an uneventful year within private equity, the Asia-Pacific markets have had a more memorable time of it than most.

Travel disruption – still a major consideration in regional hubs such as mainland China and Hong Kong – has contributed to an ongoing bifurcation in fundraising fortunes. Meanwhile, regulatory actions hit China, the region’s largest market and an important source of alpha for investors globally, mid-year and show little sign of abating.

Still, bright spots remain. India, in particular, has enjoyed a stellar 18 months for dealmaking, and Southeast Asia’s exit prospects are looking rosier than ever before.

As 2021 draws to a close, Private Equity International takes a look at the emerging trends that could define Asia-Pacific private equity in the year ahead.

They might be giants

Though only two Asia-focused vehicles – the $15 billion KKR Asian Fund IV and $10.6 billion Hillhouse Capital Fund IV – have closed north of the $10 billion mark to date, it would be no surprise to see more names join that list in 2022.

Carlyle Group is expected to seek between $8 billion and $10 billion for its sixth Asia flagship next year, PEI reported in November. Hong Kong-based PAG is seeking $9 billion for its fourth buyout fund and is expected to hold a first close by mid-year, according to Reuters. Baring Private Equity Asia has reportedly already met the $8.5 billion target for its eighth flagship and is yet to hold a final close.

None of these funds are formally targeting more than $10 billion, but it’s by no means uncommon in today’s heady fundraising environment to see funds close well north of their initial target. US venture giant Insight Partners, for example, collected $20 billion for its latest flagship against a $12 billion target; KKR’s record Asia fund closed 20 percent above its $12.5 billion target.

China’s regulatory uncertainty and ongoing travel disruption look set to further catalyse the flight to familiarity: investor capital has flocked to larger, pan-regional funds managed by brand-name managers at the expense of less-established country funds.

Haves and have-nots

Chinese private equity funds, in particular, may report some underwhelming closes next year due to diminished appetites from western investors. The causes of this pullback have proliferated following a series of regulatory actions designed to cap the growing power of its tech giants and protect national security.

“Ninety percent of LPs we’re talking to at the moment are saying they’ve put China on pause. It is really a challenge – some funds in market are not even seeing re-ups,” Niklas Amundsson, a Hong Kong-based partner at placement firm Monument Group, said.

“If you had set out fundraising before all of this happened, you’d have probably been quite ambitious. These fundraisings will need to close at some point and could do so below target.”

There are more than 160 China-headquartered private equity funds in market targeting at least $47 billion between them, according to PEI data. Only about 63 launched in 2021.

Fundraising in China had already been on the decline thanks to souring relations with the West. Domestic managers collected $82.9 billion between 2018 and 2020, down from $103.2 billion between 2015 and 2017. They raised $12.5 billion in the first half of this year.

“Today’s not an easy environment to fundraise in, especially coupled with covid,” said one senior executive at a Chinese GP in market with a fund earlier this year. “Investors have negative concerns front and centre.”

Indian influx

Chinese private equity’s loss could be India’s gain next year. With massive funds raised for Asia comes a need to put that capital to work, and PEI knows of at least one pan-regional fund manager that is expected to increase its India focus at the expense of China in the short term.

Firms have already been making the country a priority during the pandemic. Baring Private Equity Asia signed or completed three new investments in India this year alone, representing more than $2.1 billion of total equity commitments. KKR struck the same number of India deals in 2021, including its $625 million acquisition of Vini Cosmetics and $234 million investment into Five Star Business Finance as part of a wider consortium.

Carlyle named Amit Jain, a former senior managing director and 10-year veteran at Blackstone, as its co-head of India last month. It also signed several hefty deals in the country last year, including a 74 percent stake in healthcare company SeQuent Scientific for a reported 15.87 billion rupees ($215 million; €180 million).

“India volumes for us and I think for the overall market are way up,” Paul DiGiacomo, managing partner of investment banking advisory BDA Partners, said.

“The level of appetite we’re seeing from global and regional funds to deploy into India is much higher than it’s been in a long time. There’s now a lot of interesting Indian companies playing in the new economy space… that are sizable and interesting, and I think play well to the experiences that global and regional firms have had in other parts of the world.”