Asian private equity managers are world’s most bullish

Private equity executives in Asia are the world’s most bullish, with a majority expecting to ramp up investment activity in the coming year, fuelled by deals involving private and family-owned businesses, according to a survey by Grant Thornton.

Managers in the "Bric region" – defined by Grant Thornton as Hong Kong, China, India, Brazil, Latin America, Russia and South Africa – were the most optimistic, with 72% expecting to see an increase in deal flow, notes the accounting firm’s global private equity report titled A Force for Growth, which surveyed 144 private equity executives worldwide.

In Asia-Pacific, in which Australia, Singapore and Vietnam are grouped, the mood is also buoyant, with 66% of respondents anticipating more deals in the near future, compared with North America (63%) and Western Europe (50%).

A large proportion of Bric respondents (68%) expect private and family-owned companies to be a key source of deals – nearly double the 38% from Asia-Pacific – given the greater number of opportunities in developing markets to enter growth equity deals with businesses that are looking to expand. 

“Deal flow will come mainly from entrepreneurial businesses needing capital,” a Vietnam survey respondent is quoted as saying in the report. “Interest rates are very high so private equity is an attractive source of funding.”

Eugene Ha, partner of advisory services at Grant Thornton Jingdu Tianhua – the Hong Kong branch of the accounting firm – notes that "the competition for deals has intensified". Bids for the limited pool of quality deals are not only coming from both domestic and global private equity players, but also trade buyers, pushing prices upwards as a result.   

Economic expansion is a main pillar behind private equity optimism in the Bric region, the report points out. While GDP growth of 7-8% would be difficult to imagine in Europe or North America, this has been sustained and is forecast to continue in China and India, despite fears of overheating, it notes.

While Asia appears to have healthier deal prospects, executives have clouded views on their ability to raise capital for new funds. “Private equity players in the Asia-Pac region tend to be more negative about the current fundraising environment than their counterparts in other regions,” the report finds.

Australian respondents cited an increasing need to raise money overseas – where there was greater competition for investor capital – as domestic superannuation schemes reduced their exposure to private equity.

A more optimistic sentiment has prevailed in Hong Kong, which remains the most accessible market for investors to access thematic funds that focus on China's economic growth, says Ha. 

Global private equity giants KKR, TPG and Bain Capital are reportedly planning multi-billion dollar funds focused on Asia, while Hong Kong-based Arch Capital is raising a $500 million pan-Asian property fund.