In the Asia-Pacific region, private markets are coming back faster thanks to a strong exit environment.
As of June, the assets under management at APAC-focused private equity and venture capital funds had grown two and a half times larger than their 2018 levels, surpassing the AUM growth rate in both North America and Europe over the past five years, according to data firm Preqin. The region’s overall private capital assets — including private debt, real estate, infrastructure, and natural resources in addition to PE and VC — have also doubled over the period, primarily driven by the surge in venture capital assets.
Preqin reported that the exit environment is also more robust in Asia than it is in other regions, which may help private equity and venture capital firms rebound faster from the 2022 market downturn. For example, the Shanghai Stock Exchange and the Shenzhen Stock Exchange — the two largest stock exchanges in China — beat their global peers in terms of proceeds raised from initial public offerings in the first quarter.
“Deal flow has held up relatively well compared with other regions, and stronger exit prospects in APAC’s public markets could allow private equity and venture capital to recover faster there,” the report said.
According to Preqin’s estimates, venture capital funds are projected to deliver a compounded annual growth rate of 16 percent in Asia over the period from 2021 to 2027 — higher than the anticipated global average of 14.6 percent and North America’s expected growth of 13.8 percent. Private debt funds in Asia are expected to generate a CAGR of 9.1 percent during the same period, compared to 8.4 percent globally and 7.8 percent in North America.
Private equity, on the other hand, looks less robust than it does in other regions. That is due in part to weak investor sentiment toward China, which represents 56 percent of the total AUM of all PE funds focused on the APAC region.
According to the report, PE funds focused on the Greater China region raised a total of $9.2 billion in 2022, significantly down from $85.5 billion in 2021. The dampened sentiment toward China is driven by the country’s slowing economy, an aging population, and escalating geopolitical tensions between China and the West. Preqin estimates that PE funds will generate a CAGR of 11.6 percent in the APAC region from 2021 to 2027, underperforming the global average of 13.5 percent.
Despite the obstacles facing private equity, the Preqin report offers an overall positive outlook for private market investing in Asia. Still, the report warns that the region is not immune to the risks that pose challenges to the global economy. “Even though inflation and interest rates have generally been more stable in APAC, weaker global market sentiment has negatively impacted asset prices, market volatility, and investor confidence,” the report concluded. “China’s efforts to jump-start its economy after phasing out its zero-Covid-19 policy in late 2022 will take time to materialize into a full rebound.”
