Five trends for 2019

What do the next 12 months have in store? AVCJ has some ideas, but first here is a review of the predictions made for 2018...

• THE BIG GET EVEN BIGGER

Yes, but not a difficult call. Affinity Equity Partners, The Carlyle Group and PAG Asia Capital all reached bumper final closes, with an average increase on the previous vintage of 63%.

• SPECIALIZATION STORIES

Yes, but as we said at the time, it’s hard to quantify. Almost all GPs are placing more emphasis on industry expertise, although there’s a difference between talk and execution.

• A BLUE CHIP SECONDARY

Yes. Lexington Partners backed a tender offer for TPG Capital’s fifth and sixth Asia funds, taking out existing positions held by LPs and investing new capital into the firm’s seventh fund.

• AI ON FIRE IN CHINA

Yes. Private equity and venture capital investment in the space stands at $4.6 billion year to date, up from $998 million in 2017. Valuations have, inevitably, become overinflated.

• A BIG YEAR FOR INDIA

Hard to tell. Investment and exits have already surpassed last year’s record highs and buyouts are up threefold on 2017. But how many LPs are truly happy with the returns they are getting out of India? Maybe a little more time is needed.

Which brings us to the five trends for 2019...

• TURBULENCE IN CHINA

Turbulence is a relative term. It would be surprising if China experienced a painful political or economic shock in 2019 – the government retains tight grip in both areas. The tried and tested formula for coping with a downturn is to invest in infrastructure, facilitate exports, and loosen controls on credit. But is Beijing now in a bind? An economic stimulus might run counter to deleveraging efforts, while trade tensions with the US are harming exports and local sentiment. As a result, 2019 might be a difficult year of transition. Long-term investors could benefit.

• SPIN-OUT STORIES

A number of GPs have emerged to fill the gap in China’s middle market. DCP Capital Partners and Centurium Capital are set to close their debut funds early in the new year. Nexus Point Capital might not be far behind. All three are led by executives from well-known firms (KKR, Warburg Pincus, and MBK Partners). India has probably seen even more spin-outs than China, but the fundraising environment is tougher. One or two more may break through.

• SECONDARIES SURGE

This was one of the predictions for 2016 and it didn’t turn out as expected. But 2019 will be different, we say with no little trepidation. Over the past year, secondaries investors have completed a variety of deals in Asia, from tender offers with staples to captive spin-outs to additional runway arrangements. The argument for more restructurings still stands: a generation of funds, primarily in India and China, are not getting any younger and assets have yet to be exited.

• STRATEGIC TECH POWER

There have been three large-scale strategic acquisitions in the tech space this year involving Flipkart in India and Ele.me and Mobike in China. While this will not necessarily be repeated in 2019, expect strategic investors to try and tighten their grip in e-commerce and fintech, with India and Southeast Asia the key target markets.

• A BIG YEAR FOR SOUTHEAST ASIA

Take your pick. Can Southeast Asia benefit from a shift in manufacturing from China as companies try to escape trade tensions with the US? Can markets like Vietnam deliver consistent deal flow and establish themselves as markets with critical mass? Can the region’s private equity firms – several of which are currently fundraising – convince LPs that they are able to deliver across multiple markets and the disappointing returns of the past are truly in the past?

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• Topics
• Fundraising
• Secondaries
• Technology
• Asia
• GPs
• Spin outs