AVCJ

Asia PE investment declines 40% in 2022

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Asia private equity investment reached USD 223.9bn in 2023, a sharp decline from the USD 376.4bn recorded a year earlier, but still the second-largest annual total on record, according to provisional data from AVCJ Research.

Following a relatively strong first quarter, investment activity slowed across buyout, growth, and venture. The war in Ukraine, US-China tensions, macroeconomic concerns, the increased cost and limited availability of financing, sell-downs of healthcare and technology stocks, and uncertainty tied to China’s zero-COVID-19 policies have all been identified as contributing factors.

Of the 25 largest transactions announced during the year, 12 came in the first quarter compared to five in the final quarter. Buyouts accounted for 18 deals, while 17 transactions – all but three of them buyouts – were in the region’s more mature economies of Australia, Japan, South Korea, and Singapore.

There was also a preference for more tangible assets. Technology retained top spot by sector, but commitments fell to USD 70.8bn from USD 144.8bn in 2021, reflecting weakness in growth-stage deals. Manufacturing (USD 17.9bn, down from USD 20.2bn), utilities (USD 21.8bn, down from USD 24.6bn) and transportation and distribution (USD 21.3bn, up from USD 20.8bn) proved more robust.

One of the bright spots was a continued willingness on the part of financial sponsors to buy assets from each other. Private equity exits in Asia fell to USD 79.3bn from USD 115.5bn in 2021, primarily driven by a slump in trade sales from USD 65.1bn to USD 40.4bn. Sponsor-to-sponsor deals were also down but only by 16% at USD 30.2bn after a fourth-quarter resurgence.

These transactions accounted for 38% of overall exit proceeds, compared to 30% in 2021, 29% in 2020, 24% in 2019, and 21% in 2018. Of the 25 largest exits in 2022, 14 were sponsor-to-sponsor.

Asia fundraising for the year came to USD 127.7bn, just short of the USD 128.9bn raised in 2021. The annual average for the preceding eight years is USD 138.3bn. Excluding renminbi funds, the total is USD 99.5bn, which narrowly exceeds 2021 and 2020. However, the number of closes is at an eight-year low of around 430. This compares to approximately 700 in each of 2021 and 2020.

The notion of LPs favouring the few was underlined by Sequoia’s activity. In addition to securing USD 8.8bn for its latest set of China funds, the firm raised USD 2bn for India and USD 850m for Southeast Asia (though each GP is a separate affiliate of Sequoia globally). The other two large final closes – of USD 11.2bn and USD 6.4bn – were for BPEA EQT and The Blackstone Group’s latest pan-Asian funds.

Sequoia’s three Asia-based affiliates, BPEA EQT, and Blackstone together received nearly 30% of all capital committed to US dollar funds in 2022. Meanwhile, Sequoia Capital China and Qiming Venture Partners – which closed its latest fund on USD 2.5bn – accounted for three-quarters of the capital raised for US dollar China funds.

For further insights into fourth-quarter private equity activity in Asia and references to full-year data, please see AVCJ’s fourth-quarter analysis.

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