The Transformative Effects of Private Equity in Asia

by Ee Fai Kam

  • 13 Mar 2019
  • PE
  • VC

A typical day for a working professional in Singapore could look like this: ride to work using Grab, pick up a morning coffee from Coffee Bean & Tea Leaf, have lunch delivered from Deliveroo or Food Panda and hit the gym at Fitness First after work. On the surface, these look like disparate activities, but a closer examination reveals a common link: these companies are all backed by private equity.

A daily routine such as this is shared by millions across Asia, differing only in service providers and private equity-backers from country to country. For example, Didi is the taxi platform of choice in China, while in India it is Ola, and in Indonesia – with $2bn in annual revenue – food delivery has serious players such as Go-Food and GrabFood battling for dominance.

Preqin data shows that private equity (inclusive of both buyout and venture capital) investments on the continent have grown at a CAGR of 20% in the past decade, reaching an extraordinary $169bn in 2018. In the same year, Chinese venture capital eclipsed that of the US for the first time in history, recording $105bn of deals against $98bn raised in the US – and China is not resting on its laurels. Continuing to power ahead, China currently has plans to develop a Greater Bay Area that will serve as a hub for the financial services, trade and tech sectors.  

The landscape did not look like this 20 years ago, when entrepreneurs were a rare breed not only due to the difficulty of accessing financing, but also because of long processing times for company registrations as well as a lack of cross-border trade agreements. Fast-forward to 2019 and an abundance of venture capital has led to a boom in entrepreneurship, with more than 5,000 company founders across Asia receiving funding last year.

Successful fundraising has inadvertently led managers to sound the alarm on frothy valuations. General partners are now more selective, seeking companies with a clear competitive advantage such as proprietary technology, first-mover status or the ability to operate in a niche market. The pitfalls of paying too much for a deal were painfully clear when Warren Buffett recently acknowledged that Berkshire Hathaway had overvalued Kraft.

Besides paying the right price for a deal, Asia-based managers looking to future-proof themselves would do well to consider ESG concerns – sustainable investing, ethics and governance compliance are becoming increasingly important to investors and fund managers globally: Preqin’s Future of Alternatives report shows that 40% of surveyed alternatives investors already have an ESG policy in place, with a further 40% expecting to implement one by 2023. ESG is already garnering attention in Asia – especially with more regional investors committing to the UN’s Principles for Responsible Investment (PRI). For those private equity & venture capital managers looking to capitalize on the huge and rapidly expanding opportunity across Asia, such considerations may make all the difference.

Preqin has extensive coverage of the private equity & venture capital industry in Asia, including fundraising, deals, investors, performance and much more.

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