
Five trends for 2018
AVCJ looks at how its 2017 predictions turned out and identifies some key themes for the year ahead
What do the next 12 months have in store? AVCJ has some ideas, but first here is a review of the predictions made for 2017...
• A CONTINUED RENMINBI RESURGENCE
Not so much. A steady stream of managers are raising renminbi vehicles in addition to – or instead of – US dollar funds, but 2017 has not seen an industry-defining breakthrough.
• SECONDARIES SURGE
Yes, although not quite as expected. There were interesting and sizeable transactions involving Warburg Pincus and IDG Capital the like of which Asia has not seen before, but the wave of restructurings involving aging India and China funds has yet to materialize. It will at some point.
• A PAN-REGIONAL TURNING POINT
Maybe. Of the three GPs mentioned last year – KKR, The Carlyle Group, and TPG Capital – one closed its fund rapidly, one is should close near to its hard cap, and the other is said to be struggling.
• DOWN ROUNDS, OF SIGNIFICANT SIZE
Yes, but largely limited to India. Flipkart raised a down round and Ola is doing the same. Snapdeal abandoned a merger with Flipkart that would have been at a lower valuation.
• A BIG YEAR FOR JAPAN
Yes. PE investment in Japan currently stands at a record $25.1 billion for 2017. Toshiba Memory Corporation helped, but there were four other $1 billion-plus deals, three of them carve-outs.
Which brings us to the five trends for 2017...
• THE BIG GET EVEN BIGGER
KKR has set the pattern, closing its third pan-Asian fund at $9.3 billion, 55% larger than the previous vehicle. Expect others to do the same. Affinity Equity Partners is said to have penciled in a final close of at least $5 billion for its latest fund – up from $3.8 billion last time – before the end of 2017. The Carlyle Group should follow in 2018. It raised $3.9 billion for its third Asian buyout fund has set a hard cap of $6.5 billion for the fourth. Baring Private Equity Asia will launch next year and is likely to target a sizable mark-up on the $3.98 billion raised for its last fund.
• SPECIALIZATION STORIES
Perhaps hard to quantify, beyond tracking the number of sector specialist funds in Asia (which do appear to be growing in number). Nevertheless, sector specialization – and the ability to make it work across different markets – has already become a priority for the global firms, and a trickle-down effect is likely. Asia-based GPs will certainly talk more about sector and functional expertise, even though not all of them will be making it count at portfolio level.
• A BLUE CHIP SECONDARY
BC Partners led a transaction that saw Lexington Partners take out some LP positions in Fund IX and make a stapled commitment to Fund X, while Warburg Pincus sold a strip off the Asian companies in its global fund. Neither GP turned to the secondary market in desperation; these were strategic moves to return capital to LPs. A number of established GPs with Asia-based funds are said to have inquired about doing the same.
• AI ON FIRE IN CHINA
SenseTime has established itself as a hot property in China’s artificial intelligence (AI) space by combining computer vision and deep learning technology. Others have started to follow. The quantum of capital, valuations and applications across different industries will all expand in 2018.
• A BIG YEAR FOR INDIA
India appears to have won back investors’ interest; now it has to keep it. PE investment in the country should reach a record high in 2017, while exits are solid, supported by robust IPO activity. Local GPs must continue to demonstrate their capabilities by pursuing more creative value-driven buyouts and maintaining a steady stream of exits.
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