Five trends for 2021

What do the next 12 months have in store? AVCJ has some ideas, but first here is a review of the predictions made for 2020... 

• PAN-REGIONAL FUNDRAISING REBOUND

Yes, but it was an easy prediction to make. Thanks to the likes of KKR, the pan-regional share of Asia fundraising is 51%, up from 31% in 2019. 

• A MIXED YEAR FOR UNICORNS

In 2019, there were 20 funding rounds of $500 million or more for tech start-ups in 2019. In 2020, there have been eight. Companies that address remote consumption needs remain in favor. 

• OPPORTUNITIES IN INDIA

Not quite as imagined. The $33.9 billion deployed in 2020 is the second-highest annual total on record, but Jio Platforms and Reliance Retail received nearly half the money. 

• PIVOT TO ENTERPRISE

Early and growth-stage tech investment in China is down 28% year-on-year. Areas like software-as-a-service have arguably been less impacted. 

• A BIG YEAR FOR JAPAN

For fundraising, absolutely, with buyout managers securing record commitments. Meanwhile, investment held steady.

Which brings us to the five trends for 2021... 

• SECONDARIES TO SOAR

A prediction made numerous times over the years, often to no great effect. But surely 2021 will be different? On the LP side, there is likely some pent-up demand from investors previously held back by valuation uncertainty. There might also be a desire to rebalance portfolios post-pandemic. GP-led transactions should be just as plentiful. Exits have been delayed, prompting managers to think creatively about realizations. Expect more firms to target tail-end restructurings and single-asset continuation vehicles. 

• DISTRESS, FINALLY

Distress investment opportunities were supposed to proliferate amid the economic chaos of COVID-19. It hasn’t worked out that. First, governments moved swiftly and decisively, offering sufficient policy support to keep many companies business – to the point that the market has confused solvency with liquidity. Second, banks are still the major providers of leveraged financing in Asia and they have been remarkably accommodating, granting grant covenant holidays and interest payment waivers. Some of these unresolved issues will come to a head in 2021. 

• AN EXITS REBOUND

Well, if they don’t, Asian private equity has a problem. While IPOs have been strong, trade sales have not. Where deals have got done, the buyers tend to be other financial sponsors and local strategics. Global players seem reluctant to engage, either because they are too far removed from the assets for comfort or they are preoccupied with internal problems. If these corporates want to take advantage of the Asia growth story, the status quo must change. 

• DATA DOMINATION

Data is a broad term, but the trend encapsulates infrastructure as well as data services. Investors will plow even more money into data centers in 2021, recognizing that supply – hyperscale or otherwise – needs to keep pace with rising demand. At the same time, there will still be capital aplenty for start-ups that help corporates make sense out of data. It is an extension of the shift towards enterprise services visible in venture capital portfolios across the region. 

• A BIG YEAR FOR WORK FROM HOME

This will be hard to quantify. COVID-19 has forced private equity firms to change the way they operate: investment professionals have been working from home; pre-deal due diligence and post-deal portfolio oversight has – to some extent – moved to virtual channels; and back-office support structures have gone remote. Dealmakers will resume travel as soon as they can, but it remains to be seen how often they use the office. Some GPs might decide that virtual interaction works fine for internal meetings and flexible working solutions are preferable.

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• Topics
• Fundraising
• Secondaries
• Exits
• Technology
• Restructuring
• Asia