News & Events

Fundraisings, Investments, Exits All Down As Credit Crunch Bites

Asian Venture Capital Journal (AVCJ) Research figures show that after a year of private equity industry upheaval, the Asia Pacific industry is at last registering the effects of the downturn in the asset class. Although private equity and VC capital under management across the region continues to grow, its rate of growth has slowed and almost every other industry metric is down on last year.

Closer examination of the figures, however, reveals a far less uniformly gloomy picture. China, the region’s favourite developing market, held up relatively well in most departments. And other popular markets, such as India, or currently unpopular ones, such as Korea, also showed good results in certain areas – outweighed only by a predictable slump in the truly developed markets, such as Australia, Hong Kong and Japan.

Capital Trimmed, Fundraising Down

Capital under management for Asia Pacific in the first six months of this year underperformed the full-year growth rate for 2007, at 15.6% so far, versus 20.3% over the whole of last year. Aggregate private equity capital under management for Asia Pacific now stands at just under US$198 billion, with the US$200 billion ceiling likely to be reached any time.

Fundraising, though, was decidedly down – 21.5% off the 1H2007 total at US$19.2 billion so far this year compared to US$24.5 billion in the first six months of last year.

Japan and Australia saw an expected fall in fundraising, as LPs absorbed the argument that larger leverage-dependent deals would be fewer. Japan fell by 33.8% against last year to reach just under US$1.9 billion; Australia saw an almost 75% fall to US$775 million – down from over US$3 billion in 1H2007. China also showed a circa 20% slide to some US$5.5 billion. However, Hong Kong enjoyed a real ramp-up of almost 115%, with over US$7.2 billion raised by Hong Kong-based regional funds so far this year.

Singapore seems to be losing its status as a major regional fundraising hub, with a 96% drop on 1H2007 and only US$126 million raised this year, versus over US$3.4 billion for 1H2007. The growing importance of China as a fundraising venue, and the big Chinese SWFs and companies as LPs, could be fuelling a drift away from Singapore and towards Hong Kong. Indeed, Southeast Asian markets in general seem out of favour: hotspot Vietnam saw almost a 48% fall, with Malaysia and Thailand following Singapore down.

Investments Down – But Not in East Asia Or Chindia

New investments were down over the first six months, with US$32.4 billion representing around a 22.7% decline on the US$42 billion invested in 1H2007. Australia, Hong Kong and Singapore led the slide, down from the same time last year by 58.4%, 76.1% and 52% respectively. However, some of the region’s most important markets saw definite increases in new investments made. India, interestingly, saw just a small 3.2% comparative increase in investments over the period, at just under US$6.8 billion, seconded by a 3% rise in sister emerging economy China to around US$5.8 billion. Japan and Korea, meanwhile, did even better; the first rising by 61% compared to 1H2007, at just under US$8.9 billion of investments; and the latter soaring by over 225%, from US$471 million in 1H2007 to over US$1.5 billion in 1H2008.

Exits Down Against IPO Drought

The exit environment for Asia Pacific private equity and VC investments, however, does look pretty bleak this year, with some leading markets – notably Hong Kong and Singapore – seeing no private equity-backed IPOs of local issuers whatsoever. Just US$11.5 billion of value was created in private equity-backed IPOs, over 41% down on 1H2007.

All the same, there were once again a few bright spots. Japan saw a modest 3% uptick with just under US$750 million of listings so far this year, while Korea soared almost 350% with US$218 million of listings – though from a very low base. China and India, however, both fell, by almost 45% and almost 9% respectively to some US$9.3 billion and just US$803 million. The PRC did continue to bring assets to the table, with eight out of the top ten private equity-backed IPOs of 2008 so far coming from Chinese issuers.

Much the same situation prevailed in M&A exits, which fell by 20.5% against the same period last year, to US$12.7 billion. Australia saw around a 75% drop in both types of exit. Almost every single market except Japan registered a decline – even a crash landing in some cases. Korea fell by 75%, compared to Japan’s 6% rise, to just under US$700 million, as fractious regulators continued to stall the over US$6 billion Korea Exchange Bank exit.

Stage and Sector Unsurprising

The breakdown of activity this year by investment stage showed how buyouts have slid in regional activity as leverage difficulties become more significant. Buyouts contributed just over 31% of the region’s deals compared to over 64% in 1H2007 and over 47% for the whole of last year.

Expansion capital was the major beneficiary. From 14% of all investments in 1H2007 and just 20% for 2007, this investment stage has advanced to take over 24% of all investment activity. PIPE financings showed a similar rise – from 12.6% through almost 20% to just under 24% this year. Expansion/growth capital is now flavour of the quarter with GPs and LPs alike. Turnaround and restructuring deals, however, have advanced from around 1.1% of transactions over the past year to some 9.5% or over US$3 billion now, suggesting that the credit crisis is starting to create some opportunities, as well as close off others.

Financial services and TMT are likewise the biggest sectors over the past 18 months, currently standing at almost 21% and 11% of regional deals respectively. However, this marks a slip in their dominance in 1H2007, when the relative figures were over 35% and 23% respectively. Heavy manufacturing, construction, and travel and hospitality moved up. The latter two are usually proxies for consumer income levels, and suggest that the consumer growth story in Asia still has some distance to run – at least in the minds of private equity investors.

Asia Pacific Private Equity Weathers the Downturn

Commenting on the results, AVCJ managing editor Paul Mackintosh said, “Asia Pacific private equity has shed some of the froth and over-exuberance of the past few quarters, but is performing well in the face of global difficulties. Retrenchment in fundraising and fund pool growth are signs of correction, not crisis. Investments are being made in significant target markets, with new opportunities being unlocked. We expect to see total assets breach US$200 billion soon, and allowing for reporting errors, this may already have happened.”

"The true slowdown in fundraising for the wider Asian region is in fact more pronounced than the headline figure of 21% indicates, as it is masked by the continued resilience of the China and India growth stories,” observed David Nott, partner and regional leader, Asia Pacific at the KPMG Private Equity Group. “Excluding China, India, and Hong Kong-based funds, the rest of Asia Pacific saw a decline in fundraising of 71% year-on-year."

Vincent Pun, senior research manager at AVCJ Research, added, “Benefiting from institutional investors’ weak confidence in Western markets, LPs have been increasing their investment pace in Asia to seek higher returns. As private equity investment is a long-term business, the recent market corrections create opportunities for investment managers shopping for something reasonably priced.”

These and other important facts and figures on the state of Asia Pacific private equity are available from AVCJ Research.

AVCJ Group is the leading source of information on Asian private equity, venture capital and mergers and acquisitions. A wholly-owned subsidiary of Incisive Media PLC, AVCJ’s stable of journals includes Asian Venture Capital Journal, Private Equity Asia, M&A Asia and Asian Venture Capital Journal (Chinese edition). For more information, please visit