Multinational accounting firm KPMG—one of the global “Big Four” auditors—has released its forecast for 2021 private equity activity in the Asia Pacific region, where it sees ample opportunity for new fund growth and windfall exits alike.
“In Asia, General Partners (GPs) remain overwhelmingly bullish on the outlook for 2021, as demonstrated by the large amount of capital that continues to be raised and that is to be deployed in the Asia Pacific region,” said Andrew Weir, KPMG’s Global Chair in Asset Management and Real Estate, and Regional Senior Partner and Vice Chairman for KPMG China. “Given the capital available, the wider range of asset classes that GPs can invest into and their ability to invest across the capital structure, I am confident the industry will continue its strong growth trajectory in China and the rest of Asia in 2021.”
Pent-up demand
KPMG notes that PE trade sale exits in Asia Pacific decreased to an aggregate value of $29.5 billion in 2020, as travel restrictions limited in-person deal meetings and due diligence activities. This in turn slowed acquisition timelines and caused delays in closing transactions.
But with the anticipated rollout of vaccines, and amid more widespread institutional embrace of virtual meetings, KPMG expects a healthy exit market for both IPOs and trade sales in Asia Pacific in 2021. Public market valuations, the firm notes, have remained steady, and this—along with a continued low interest rate environment and a backlog of delayed exits—should support seller pricing.
The Asia-Pacific IPO market itself was relatively less affected by the pandemic, a phenomenon KPMG has attributed in part to the performance of the Science and Technology Innovation Board at the Shanghai Stock Exchange (Asia’s Nasdaq-style tech big board, which launched in 2019), in a banner year for tech stocks as a whole.
China’s major exchange in Shenzhen and Shanghai, along with Hong Kong, ranked in the top five for IPO proceeds, with $118.7 billion raised during the year, 50 percent higher than the amount generated at U.S. exchanges in 2020. KPMG says the Asia Pacific market is well positioned for another year of solid IPO proceeds, with strong pipelines expected in China and India, and some large companies anticipated to IPO in Southeast Asia.
Dry powder, debt, diversification
KPMG has identified multiple themes that are likely to drive the private equity market in Asia Pacific in 2021.
First, Asia continues to outperform capital raising, setting new dry powder records. At $476 billion as of November 2020, Asia-Pacific PE and venture capital (VC) dry powder share now accounts for 25 percent of the global total, surpassing Europe’s 19 percent, which KPMG expects to continue to outstrip the U.S. and EMEA and drive deal activity.
Asset class diversification will also remain a compelling subtheme, as limited partners (LPs) increase their exposure to the region, and PE seek to expand their universe of investment strategies to attract capital.
Environmental, social, and governance (ESG) informed strategies—a familiar theme to most market participants in 2020—could see a “breakout year” as ESG as a distinct asset class is increasingly viewed as a value driver.
Private debt is likely to see continued investment momentum in 2021. KPMG notes that Asia private debt funds have more than doubled in size from $28 billion in 2014, to $64 billion as of 2019, a trend that shows no sign of slowing in 2021 as government liquidity programs are withdrawn, bank lending requirements tighten, and Asian companies continue to need financing—all of which will support demand for private credit providers.
Asia Pacific debt product offerings are also becoming increasingly diverse, encompassing direct lending, mezzanine financing, sponsor lending and special situations funds.
Infrastructure!
KPMG sees a particularly robust market for Asia Pacific private infrastructure, driven by strong investor interest and generous government incentives in both greenfield and brownfield projects. Per KPMG, global assets under management in private infrastructure funds are expected to grow 25 percent to $795 billion by 2025.
Additionally, renewable energy and logistics projects—areas that span across infrastructure, real estate and commodity asset classes—will likely continue to attract investment into Asia Pacific in 2021, particularly through local partnerships and joint ventures.
