Now is the time to open an Asian office
The last few years haev been among the most challenging for private equity. Armed with many of the best practices in the financial services, the industry emerged from the global financial crisis battered but not broken. And now, having turned the corner, private equity firms are re-defining their strategies for growth.
Asia is inevitably playing a tremendous role – as testified by the number of GPs who have dropped by AVCJ’s Hong Kong offices for a chat.
Prior to the crisis, these discussions suggested that many firms were seriously thinking of investing time and capital to open Asian offices. Sadly, plans were then put on hold as senior executives dealt with the more immediate concerns. Perhaps now is the time to bring them out of the draw again – as the outlook for Asian private equity is looking brighter than ever.
To illustrate the return of private equity in Asia, AVCJ Research provided me with preliminary data that puts fundraising activity in the first six months of 2011 at almost $16 billion. It comes as no surprise that 60% of the capital has been raised by China-based firms making direct investments in mainland companies. (The figure includes US dollar-denominated funds as well as renminbi funds, the latter now being the vehicle of choice for China-based GPs.) Hong Kong-based regional funds account for $3.2 billion of capital raised, while Indian funds were able to muster a total of $1.7 billion.
In terms of investments, China also leads the region with $9.2 billion in capital deployed. It is followed by Australia and Japan, each of which saw more than $5 billion in private equity investment. Many Indian GPs may soon find their way back into the fundraising circuit as investment came in at close to $7 billion, almost double the amount raised.
These are all signs that Asian private equity is on the up and activity is likely to intensify later this year as the large regional funds begin marketing new vehicles.
What does this mean for potential new entrants? Now is the time to invest in Asia. Unless newcomers can come up with a strong investment or boast expertise in a particular sector, they will compete with Asian teams of local and global firms for LP allocations, deals and staff. As these established groups continue to build better track records and raise bigger war chests, they will become even more formidable competitors. The message is simple: don’t miss the boat.
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