Hong Kong: New funds raised for private equity investing in Asia dropped 21.5% in the first half of this year, according to a report on Monday, 14 July, as the credit crunch finds a way to push into the region after crippling deals in the US and Europe.
The 2008 first-half findings of the Asia Venture Capital Journal (AVCJ) are a strong contrast to its year-end figures six months ago, when private equity fundraising and investing both notched major gains.
Fund raising from the start of the year slid to $19.2 billion from $24.5 billion a year ago, according to the publication, while new investments fell 22.7% to $42 billion.
“The Asia Pacific industry is at last registering the effects of the downturn in the asset class,” AVCJ said in a release.
Several large Western private equity firms have piled into the region in the last few years, raising billions of dollars to invest in companies benefitting from Asia’s booming economies.
Although Asian private equity investments involve much less borrowing levels than in the West, the credit crunch’s toll on global financial markets is encroaching deeper into the region.
Asian stock markets, which once looked like promising places for buyout firms to sell their stakes, have been hammered with China shares down around 50% since late last year.
Buyout firms took in only $11.5 billion of proceeds from companies they took public in Asia this year, the AVCJ found, down 41% from the year-ago period.
No cause for panic
David Pierce, CEO of Squadron Capital, an Asia-focused fund that invests in private equity firms, said at the AVCJ press conference on Monday that the numbers represented short-term data and that Asian buyout fund managers must not panic.
“Any manager who dramatically changes his style or focus based on short-term will be a manager we will not invest in,” said Pierce said.
AVCJ managing editor Paul Mackintosh said buyout firms in Asia were increasingly pursuing so-called “growth capital” deals that involve greater cash investments in fast growing companies.
And despite financial market turmoil, private equity activity in China and India is steady. India saw a 3.2% gain in private equity investing to $6.8 billion, while China was up 3% at $5.8 billion, AVCJ said.
Mackintosh also pointed out that this year’s fund raising figures were up against tough comparisons, as several firms, including Kohlberg Kravis Roberts & Co. (KKR), CVC Asia Pacific and Pacific Equity Partners, raised large funds.
“Asia Pacific is still one of the most attractive private equity venues on the planet compared to the US and Europe,” he said. “Fund raising, however, suggests that possibly for the time being the attractions of Asia are beginning to reach their top.”
Mackintosh said the bulk of private equity investing would remain centred on the cash heavy financials and technology, media and telecom sectors (TMT).
Singapore disc drive maker Unisteel agreed last month to be bought by KKR for $575 million. Meanwhile, Reuters has reported that several private equity firms are pursuing deals for units of telecom companies PCCW — a Hong Kong fixed-line carrier — and Huawei — a Chinese telecoms equipment maker.
Real Estate and infrastructure investments also represented future private equity opportunities, as the industries highlight the income growth among the region’s consumers.