The private equity (PE) market in Asia can expect more deal opportunities as governments revive their economies and businesses prepare for a different world in the wake of the Covid pandemic.
The demand for private financing for projects such as infrastructure, healthcare, clean energy, and new digital technologies and platforms such as fintech and medtech (medical) is expected to rise in the coming years.
MORE PRIVATE DEALS
“So, if you talk about coming out of the pandemic, I think a lot of Asian economies, less China, have actually recovered quite well,” said Kelvin Fu, co-founder and managing partner at Gunung Capital, a private investment management company focused on environmental, social, and governance (ESG) investing.
The easing of restrictions has seen business travel spike significantly in Southeast Asia, particularly in Thailand, Indonesia, and Vietnam, indicating that business is returning to pre-pandemic levels of interest, he told AsianInvestor.
“I think people are now finally being able to meet in person and evaluate the deals that they wanted to do. So, I do see that there will be an uptick in private equity activities,” he said, adding Asian PE has always been popular and hot.
“If you look at the amount of funds raised by private equity funds, it is actually very significant. And I don't think we've seen any significant dip in the past three years,” he said.
Companies and economies in Asia are picking up from where they left off before the pandemic to upgrade and rebuild themselves.
“There’s enthusiasm around the improvement of things in general. And economies are feeling that, the equity market is also feeling that … there's a renewed interest around what private markets can do,” said Saifulbahri Hassan, director and head of private equity at Malaysia’s Retirement Fund Incorporated (KWAP).
Despite the challenges in recent years, the PE market is growing rapidly as more and larger funds are being raised and more private deals are being made, he said at the Asian Investment Summit organised by AsianInvestor last week.
The PE market in Asia Pacific chalked up deals worth a record $296 billion in 2021, with every major market in the region setting new highs, according to a Bain & Co report in March.
The rapid adoption of technology in Asia, such as the widespread use of online communication software, is one of the key changes the pandemic has sped up, said Saifulbahri.
“In the last two years, it is a fast forward of almost a decade’s worth of adoption and advancement in the adoption of technologies.”
He expects this technology adoption to lead to a slew of PE deals in infrastructure and supply-chain operations in Asia. The pandemic has impacted the e-commerce industry significantly, most notably in the integration of the entire logistical process from the moment an order is placed to the last-mile delivery, he said.
The need for Asian companies to transform their business model to improve and meet new customer and investor demands has opened new investment opportunities for PE funds.
Gunung Capital sees opportunities in clean energy infrastructure, carbon mitigation such as storage and sequestration facilities, green industrial transition, and the circular economy - a production and consumption model that involves sharing, reusing, repairing, and recycling of resources.
Fu said many heavy manufacturing industries in Asia lack the capital and know-how to make the transition to Industry 4.0 - the phase focussing on interconnectivity, automation, machine learning, and real-time data – which will enable sustainable development, including carbon neutrality and waste reduction.
“How do you reduce waste within the factory? That is going to be one of the key values that the private equity can bring because a lot of the owners are family business owners … they want to go into Industry 4.0, but they either don't have the capital or they don't have the expertise,” he said.
“This is something that when private equity firms evaluate the company, they're going to see well, what more can I do to transform your industrial processes to make it more efficient?”
On clean energy infrastructure, Fu said investment opportunities are in the supporting industries such as the equipment and services required to lay the distribution cables to the power grid.
He added that sectors such as food and agriculture, building infrastructure, Internet of Things, and healthcare also present opportunities.
“The advancement in healthcare is mind-boggling. Look at how we managed to overcome Covid with all the vaccines so fast and mRNA will open up a whole new wave of medtech and biotech stocks,” he said.