The continuing slowdown in exit activity has been a key reason for turbulence in private equity (PE) dealmaking in Asia, according to leading industry executives at the Asia PE-VC Summit 2024.
In the conference’s opening session on Tuesday, titled “Big picture: How to navigate PE in Asia amid turbulent times”, dealmakers from Partners Group, KKR, Warburg Pincus, Pantheon Ventures, and ewpartners (formerly eWTP Arabia Capital) agreed that Asia’s long-term growth potential remains intact while underlining the need for disciplined and focused investment strategies.
“It has been a turbulent time for a while due to many factors. If I have to pick one right now, it is probably the lack of exits, which is holding back new fundraising,” said Cyrus Driver, Managing Director for Private Equity at Swiss PE firm Partners Group.
The geopolitical risks associated with China, he added, have also made investors more cautious about their exposure to the market. These perceived risks have led many investors to take a “wait and watch” approach.
Saurabh Agarwal, Managing Director and Head of Southeast Asia Private Equity at Warburg Pincus, echoed the importance of exits and distributions to limited partners and said that DPI, or distributions to paid-in capital, is the new IRR [internal rate of return].
“What comes out of exits is DPI; distributions back to LPs are very top of mind. It is something that we are very focused on,” he said.
He added that while it is very hard to predict both the severity and duration of market cycles, PE firms need to adapt their approaches to the evolving dynamics.
“If you believe in the larger opportunity, there is plenty to do around the region,” said Agarwal, adding that PE firms should be disciplined and focused with their investment strategies to ensure consistent returns.
While most PE firms are holding back fundraising in the region because of slow exits and geopolitical risks, PE major KKR is seeing good traction.
Prashant Kumar, the firm’s Partner & Head of Southeast Asia Private Equity, said 2024 is an important year for KKR in terms of active deployment and monetisation.
“Our job as alternative investors is not to have our returns go up and down but to deliver fairly consistent returns across cycles. And that’s what we’re focused on. We’re seeing good traction,” Kumar said.
KKR is among the few PE firms that have raised fresh capital this year. It has raised $808 million so far for its latest private credit fund dedicated to the Asia-Pacific region, according to a regulatory filing with the US Securities and Exchange Commission in August.
“There’s a saying in KKR: you never waste a good crisis. So we always try to be more active when others are fearful,” Kumar said.
Despite the ongoing uncertainty, Cliff Chau, Managing Partner at ewpartners, formerly eWTP Arabia Capital, still sees a lot of opportunities in the market as he highlighted the importance of conviction in deal-making.
“Depending on what you’re doing, whether the macro is good or not, you still find arbitrage opportunities in a specific situation,” he said.
With its $1-billion Fund II, ewpartners is writing bigger-sized cheques to top companies looking to bring their China-originated technologies, products, and solutions to the Middle East and help disrupt the region’s oil-dependent economy.
When public markets are challenging, there is always an opportunity in the secondary market to facilitate liquidity and exits, said Brian Lim, Partner and Head of Asia and Emerging Markets at global private markets investor Pantheon.
“Last year was pretty forgettable in terms of deal flow and exits but this year so far has proven to be better than the worst years we had,” he said, adding that activity levels have picked up and are gathering a bit more momentum.
While China has been very slow, Lim said a lot of activities in India and Japan have compensated for that in many ways. He said the one area that Pantheon has been very active in is the secondary market.
“We have been able to provide liquidity in parts of the market that we feel needed more capital to grow. This is an example of how we think in a market that is finding it challenging to generate liquidity… there is still a huge amount of growth ahead,” he added.