According to Ms Julia Leong, Hong Kong’s Under Secretary for Financial Services and the Treasury. Who spoke at the 12th HKVCA China Private Equity Summit on June 11 of this year. “The private equity industry is now a key player in Asia’s evolving financing landscape.”
In her speech. Ms Leong stated that Asia-focused private equity funds have grown by four hundred per cent in the past ten years and valued private equity funds at US $422 billion in assets last year. Thirteen years ago.
The Asian region only accounted for 6 per cent of global private equity investments. But now it accounts for more than 12 per cent. Interestingly, the allocation of public market equity investments in Asia is significantly lower proportionally than private equity investments.
And in Asia, China, in particular, seems to be where most of the activity in the private equity industry is taking place. Overall, Hong Kong has raised US$9.3 billion in private equity funds, around 20 per cent of the private equity funds raised in Asia. Investors have raised 50% of all funds in Mainland China, with 45% of the funds directed towards private equity investments there. Mainland China is expected to continue experiencing growth in investment.
China’s private equity industry is expected to continue growing for three reasons:
- Institutional investors from developed countries will most likely be increasing their Asian allocations due to pension funds looking to diversify into Asia’s higher-yielding assets and a higher-yielding currency.
- The local population of China and other Asian countries, who are increasingly middle class and tend to save for the future, will also want to invest.
- Mainland authorities in China will be easing capital controls. This will allow Mainland funds to invest overseas and will allow international private equity funds to bring money to the Mainland that has an offshore origin.
Don’t forget ASEAN
According to the Ernst & Young publication Asia Pacific private equity outlook 2013. Most industry experts agree with Ms Leong’s statements that the Asia private equity sector will experience strong growth, with Mainland China being responsible for most of it.
However, the private equity publication also states that private equity deals will increase significantly in Southeast Asia as well. Experts predict that the sector will mainly focus on acquisitions, raising new capital, and improving portfolio companies’ performance.
Experienced individuals in the private equity industry are saying that sector specialization will be even more important than before in 2013. Investors are expected to continue focusing on the energy, mining, utilities, and consumer sectors. Which were the most attractive for investment in 2012. However, these sectors will be much more active than they were just one year ago.
Regulatory environment key
Interestingly, in a survey conducted by Ernst & Young. The majority of respondents mentioned that one of the major factors concerning deal flow in the private equity industry in Asia will be the regulatory environment. Countries of particular concern will be Mainland China and India. Some of the smaller economies in Southeast Asia may cause concern as well. Australasia may also see some changes in the regulatory framework in 2013.