Post-Covid opportunities and the arrival of ‘blank cheques’: 2021 outlook for APAC private equity


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After a mixed year for private equity in Asia-Pacific, conditions for 2021 look much more positive as greater inflows and more local investment help grow the asset class in the region.

For private equity investors looking to diversify their risk budgets, Asia-Pacific (APAC) holds significant promise.

Having acted early to control the spread of the Covid-19 coronavirus, the region has emerged from the crisis much quicker than other parts of the world. It also offers a much stronger economic outlook and better growth prospects in 2021 than many other markets.

The appeal of the region has been growing for some time – and there is growing potential for investors.

A lack of penetration by private equity in the region and supportive demographic trend has made it an attractive hunting ground. Meanwhile, the region’s leadership in the technology space means there are many growth companies requiring capital.

It’s not just interest from outside the region, however. A growing amount is being allocated to the asset class by investors from the region itself. Over 2020, the median allocation to private equity by Asia-based investors rose from 3.6% to 5%, and they now represent 28% of total global assets under management.

Despite a setback for the asset class in 2019, as fundraising tumbled and uncertainty hit against a backdrop of deteriorating US-China relations, the region is expected to be the fastest-growing in coming years. Indeed, data provider Preqin has forecasted assets under management (AUM) will grow from $1.4trn in 2020 to around $4.4trn by 2025.

While the Covid-19 outbreak may have slowed the deployment of capital during the early part of 2020, activity picked up and accelerated in the second half, with sectors such as education, logistics, healthcare and technology seeing strong demand.

“In 2020, sectors such as education, logistics, healthcare and technology saw strong demand as they benefited from structural changes due to the pandemic,” said Ryan Reynoldson, partner and co-head of private equity, KPMG China. “This momentum is expected to continue in 2021 within these business models and others that benefit from the new environment.”

‘Once in a generation’ opportunity

Given the growing interest in the region from private equity investors, a substantial amount of dry powder is waiting to be deployed estimated at $476.6bn last year, equating to 25% of the global total.

There is a greater expectation of more deals in 2021, after a Covid-inspired dearth in 2020.

Indeed, there is a considerable need for private equity investment as companies impacted by the pandemic seek recapitalisation as stimulus programmes are withdrawn and banks tighten lending standards. As such, investors will have a ‘once in a generation’ opportunity over the coming years.

However, the opportunities differ across the region, according to Boston Consulting Group, with some countries – such as China and India – offering better prospects for growth-focused investors, while others – including Australia, Japan and South Korea – are more focused on buyouts. There are also opportunities for distressed strategies, particularly in China, where the scaling back of the banking sector and opening up of the market to foreign investors producing more opportunities.

“Even before the pandemic hit, APAC was a vibrant and exciting market for private equity firms. Covid-19 has not changed that, despite the accompanying economic slowdown—but it has raised the stakes,” noted Bain Capital. “Some companies and segments are growing faster today than they were six months ago because of emerging trends and changing consumer behaviours. Reduced valuations are making other sectors attractive as well.”

While private equity exits in the region were subdued in 2020, like the rest of the world, the return to more normalised conditions means that there should be a pick-up in activity during 2021. However, holding periods have shown some signs of lengthening during the pandemic as volatile conditions have impacted valuations. Further uncertainty about the withdrawal of liquidity could also impact holding periods.

The ‘blank cheque’ arrives in APAC

The popularity of special purpose acquisition companies (SPACs) in the US in 2020 has been one of the biggest trends in capital markets, with some $83bn raised last year and private equity firms positioned at the vanguard of the trend. The so-called ‘blank cheque’ companies have been boosted by the modest returns on offer to investors in the ultra-low interest rate environment and excess liquidity in the system fuelled by multiple rounds of quantitative easing during the pandemic. Increasingly, some European and US-based SPACs might begin turning their attention to the growth and buyout opportunities in the region.

More regional SPACs could begin to emerge, with several stock exchanges making preparations to admit them. According to S&P Global Markets Intelligence, APAC-headquartered SPACs raised $2.4bn in 2020, up from $613m in 2019. By 31 January, eight alone had raised $1.7bn in 2021. SPAC mergers could appeal to some of the region’s ‘unicorns’ valued at over $1bn and smaller companies not quite ready to IPO.

While SPACs have become an increasingly popular investment vehicle for private capital, they represent just a fraction of the dry powder available to buyout funds. With the region’s different legal and regulatory requirements, it remains to be seen whether the vehicles will take off in such a way as they have in western markets, but the potential for investors remains, however they decide to allocate to it.


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