Asia PE investment sees significant drop-off in third quarter

Investment has decreased with each quarter of 2022. The record high of USD 111.9bn posted in the final three months of 2021 became USD 76.7bn and USD 51.6bn in the first two quarters of 2022. This was largely driven by China, where regulatory uncertainty and corrections in public markets have taken their toll on the once-booming technology sector.

India and Southeast Asia eased the impact of the retraction in China; investment decreased, though by much smaller amounts. This dynamic was turned on its head in the third quarter of 2022. Investment in China held steady at USD 12bn, compared to USD 12.5bn in the prior three months. India and Southeast Asia came in at USD 5.4bn and USD 1.9bn, down 48% and 61%, respectively.

Activity in China was underpinned by reasonably strong venture and growth-stage activity, specifically in hard-tech and deep-tech. China accounted for eight of the 25 largest investments in the quarter, and seven of them met those sectoral criteria. However, six of the eight were sub-USD 500m plays that occupied the lower level of the top 25.

Ten of the 15 largest deals took place in developed markets, emphasising the drop-off in large growth-stage technology deals in emerging economies. There were six investments of USD 1bn or more: two from Australia, and one each from Japan, Korea, New Zealand, and India. Nearly all the 15 largest deals in the quarter were manufacturing, telecom, healthcare, utilities, financial services, and logistics.

With USD 7.1bn, or a 20% regional share, manufacturing was the second most active sector by capital invested. This coincided with a continued drop off in technology deal flow: after reaching USD 50.7bn in the fourth quarter of 2021, it has retreated to USD 28.4bn, USD 19.9bn, and now USD 10.4bn, or a 28% share. This is the sector’s lowest quarterly total in five years.

Private equity exits also struggled in the third quarter, coming in at USD 11.1bn, compared to USD 27.3bn in the prior three months. Fundraising, on the other hand, ended the 2022 trend of successive quarterly declines. A total of USD 31.9bn was committed to Asia-focused managers between July and September, although the two-speed nature of the market remains.

At a time when raising capital for China is decidedly difficult, Sequoia Capital China took a matter of months to secure USD 8.8bn for its latest set of funds: USD 480m for seed, USD 900m for venture, and USD 3.6bn apiece for growth and expansion funds. The firm raised USD 3.68bn across three funds in the previous vintage.

Qiming Venture Partners also scaled up for its eighth China fund. Having raised USD 1.2bn in 2020, the firm came back and collected USD 2.5bn, comprising a core pool of USD 1.55bn for early and growth-stage healthcare and technology and consumer deals and a parallel healthcare-only vehicle.

Qiming launched the fund early in the year and reached its USD 2.2bn target within four months. The final close was delayed until July because some LPs needed more time to complete documentation.

BAI Capital, meanwhile, set a USD 750m for its debut fund – the team previously operated as a captive under Bertelsmann – and there was every expectation of reaching it until China’s regulatory imbroglio last year. The fundraising process was effectively put on hold for six months and BAI reached a final close of USD 700m – which it said was above the initial target – in July.

See here for an extended third-quarter analysis.

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• Topics
• Greater China
• South Asia
• Southeast Asia
• North Asia
• Australasia
• Buyouts
• Expansion
• Technology
• Industrials
• Fundraising
• Exits
• Asia
• China
• India
• Japan
• Australia