OPPORTUNITIES IN TRANSITION: An Overview of the Asian Private Equity Market PDF Free Download

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OPPORTUNITIES IN TRANSITION: An Overview of the Asian Private Equity Market PDF Free Download

OPPORTUNITIES IN TRANSITION: An Overview of the Asian Private Equity Market PDF free Download. Think more deeply and widely.

OPPORTUNITIES IN TRANSITION

An Overview of the Asian Private Equity Market

Fourth Quarter 2020

•For more than a decade, above average real GDP growth rates fueled interest from private equity investors

in Asia.

–Since 2013, Asian-focused private equity funds have raised more than $900 billion (USD).1

–Greater China, India, Japan, and Korea collectively accounted for roughly 80% of aggregate capital raised since

2012. Only China and India expect 2021 GDP growth above 6.0%.2

•Venture and Growth Equity dominate Asian PE fundraising…

–During 2019, roughly 77% of aggregate capital raised was for venture and growth equity strategies.1

–“Local giants” from Baidu, Alibaba, Tencent (BAT) to Toutaio, Meituan, Didi, Xiaomi (TMD+X) and now PDD,

Kuaishou, Qutoutiao (PKQ) are increasing their influence.

–They have sponsored a number of funds and independent management teams to complement in-house

corporate venture activities.

•…however, larger growth investors are evolving to pursue traditional leveraged buyouts (LBOs) where they can

drive restructuring and operational value creation.

–Firms include PAG Asia, Baring Asia, MBK, TPG Asia, CVC Asia, CITIC Capital, and more.

–As the market matures, expect to see more sector focused or corporate team spinouts (e.g., Hosen Capital,

Lilly Asia Ventures, Ince Capital).

•As of June 2019, dry powder available to Asia-focused managers sits at more than $400 billion (USD).3

EXECUTIVE SUMMARY

Data Sources:1Asia Venture Capital Journal (AVCJ);2International Monetary Fund (IMF) World Economic Outlook (October 2020); 3Preqin, Bain &Company

Note: Gross domestic product (GDP); Private Equity (PE)

EXECUTIVE SUMMARY: ASIA BACKGROUND

Data Sources:UBS, International Monetary Fund (IMF) World Economic Outlook (October 2020), Fund Evaluation Group (FEG)

Note: Gross domestic product (GDP) based on purchasing-power-parity (PPP); Latin American (LatAm); Middle East and North Africa (MENA)

•Asia is home to more than 4.5 billion

people, or approximately 60% of the

world’s total population.

•Asia is comprised of ~50 economies

including China, India, South Korea,

and Japan.

•IMF estimates aggregate GDP of

Asian economies is more than $40

trillion, roughly 30% of global GDP.

•Asia’s GDP growth rate continues to

outpace other emerging market

peers in Latin America and MENA.

•Recent LP concerns regarding heightened geopolitical risks, a global pandemic, trade disputes, and slower

growth have negatively impacted capital allocation to Asia.

–Investors continue to be highly selective about the GPs.

–Capital was concentrated among larger “brand name” funds; many that were well oversubscribed.

•Competitive deal making environment led to higher valuations compared to other global markets.

–Public market multiples in China, Hong Kong, Japan, and India are up.

–Series C and later stage entry valuations have seen a significant uptick in valuations.

•Though largely unrealized, median returns for recent Asian-focused private equity funds have been attractive.

–Net internal rate of return (IRR) and total value to paid-in (TVPI) have outperformed Europe.

–Despite improvement, median distribution to paid-in (DPI) ratio continues to lag.

•Asian private equity landscape is massive and dynamic.

–There are more than 800 private equity firms targeting opportunities across the region.

–Turnover is a concern as economics tend to be concentrated among senior team members.

–Prior to 2020, emerging managers and corporate team spinouts were prevalent.

•Asia should be considered a core PE market, but investors should be selective with commitments.

–Focus on countries well positioned for continued economic growth and economic stability.

–Target managers with clear competitive advantage (e.g., sourcing, value-creation, joint ventures).

–Be mindful of portfolio construction. Don’t consider Asia as a “satellite”.

EXECUTIVE SUMMARY (CONT.)

MACROECONOMIC OVERVIEW

60.8% 59.5% 55.4%

20%

40%

60%

80%

100%

1995 2020 2045

Percentage (%)

Global Population3

Asia Europe North America ROW

45%

22% 19%

14%

10%

20%

30%

40%

50%

60%

Asia Europe North

America

ROW

Percentage (%)

GDP Distribution by Region1

2000 2018 2024E

20%

40%

60%

80%

100%

1960 1970 1980 1990 2000 2010 2020

Percentage (%)

Dependency Ratio4,5

China India Japan US

Data Sources:1International Monetary Fund (IMF) World Economic Outlook (October 2020); 2Fund Evaluation Group (FEG);3United Nations, Department of Economic and Social Affairs (2019); 4CIA

Factbook; 5World Bank World Development Indicators;Note:Gross domestic product (GDP) based on purchasing-power-parity (PPP); Latin American (LatAm); Middle East and North Africa (MENA);

Compound annual growth rate (CAGR);Rest of the World (ROW)

8.2% 8.8%

2.3% 2.9%

-15%

-10%

-5%

10%

China India Japan Korea

Percentage (%)

Real GDP Growth Rate1,2

2018 2019 2020E 2021E

20%

40%

60%

80%

100%

1960 1970 1980 1990 2000 2010 2020

Percentage (%)

Urbanization Rate4,5

China India Japan US

45% 42%

ROW

55%

15%

34%

20%

40%

60%

80%

100%

Region Country

Percentage (%)

GDP Distribution by Country1

China India Japan Other

Asia China

India

Japan

Other

Select Economic Development Indicators

MACROECONOMIC OVERVIEW (CONT.)

Corruption Scores Ranking4

3.8% 4.1%

3.3%

8.9%

10%

China Korea Japan US

Rate (%)

Unemployment Rate1,3

Data Source:1CIA Factbook;2World Bank World Development Indicators;3International Monetary Fund (IMF) World Economic Outlook (October 2020); 4Transparency International (2019);

Note: Lower rank within Corruption Score means country is perceived as being relatively less corrupt.Gov’t Debt expressed as general government gross debt

-5%

10%

15%

2000 05 10 15 20 25

Rate (%)

Inflation Rate3

China India Japan US

52%

62% 69%

80%

20%

40%

60%

80%

100%

China India Japan US

Percentage (%)

Services as a % of GDP1

18% 19% 19%

12%

10%

20%

30%

China India Japan US

Percentage (%)

Gross Exports as a % of GDP2

50%

100%

150%

200%

250%

300%

2005 10 15 20 25

Percentage (%)

Government Debt as a % of GDP3

China India Japan US

Country Rank (of #180)

Hong Kong #16

Japan #20

United States #23

India #80

China #80

MACROECONOMIC OVERVIEW (CONT.)

Data Sources:1CIA Factbook;2Heritage Foundation (2020); 3World Bank World Development Indicators;4Association of Chartered Certified Accountants (ACCA);5McKinsey &Co., World Bank

Note: The informal economy is the part of an economy that is not taxed, monitored by any form of government, or included in any GDP, unlike the formal economy.The Gini coefficient (also known as

the Gini index or Gini ratio) is ameasure of statistical dispersion intended to represent the income distribution of anation's residents and is the most commonly used measure of inequality.

0.39 0.36 0.33

0.41

0.10

0.20

0.30

0.40

0.50

China India Japan US

Gini Coefficient

Income Distribution1World Economic Freedom Rank2

10.2%

16.6%

9.9%

7.7%

10%

15%

20%

China India Japan US

Percentage (%)

Informal Economy as a % of GDP4

40%

50%

60%

70%

80%

1990 1995 2000 2005 2010 2015 2020

Percentage (%)

Labor Force Participation3

China India Japan US

27 29 35

100

2000 2007 2017

Percentage (%)

Global Annual Trade by Value5

Europe Asia North America Rest of World

Country Rank (of #180)

Hong Kong #2

United States #17

Japan #30

China #103

India #120

% Interregional Trade by Region, 20175

European Union

63.0

Asia-Pacific

52.4

NAFTA

40.7

Other Considerations

12.0x

11.4x

16.7x

12x

16x

2013 2014 2015 2016 2017 2018 2019 2020

YTD

Asia (MSCI Asia Pacific) Europe (MSCI Europe)

US (S&P 500)

15.3x

14.4x

13.5x

11.5x

12x

16x

2013 2014 2015 2016 2017 2018 2019 2020

YTD

India (Sensex) China (Shanghai SE)

Hong Kong (Hang Seng) Japan (Nikkei 225)

•U.S. public market valuations trade at a premium to regional indices in Asia and Europe.

•Chinese public market valuations have rationalized since peaking in 2015; Indian public market valuations

remain the highest in the region at 15.3x EBITDA.

PUBLIC MARKET VALUATIONS

Data Source:Bloomberg; Data as of October 21,2020

Note: Enterprise Value (EV) and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

EV / EBITDA of Public Markets by Region

EV/EBTIDA (x)

EV / EBTIDA of Public Markets in Key Asian Economies

EV/EBTIDA (x)

•The private equity markets in Asia are still at relatively low levels of penetration, despite high growth in funds

raised in recent years.

•Private equity investment in Japan, ASEAN, and India was less than 0.5% of Real GDP. Lower than that of the U.S.

and the European Union.

PRIVATE EQUITY PENETRATION

1.4%

1.0%

0.3%

0.4%

0.5%

0.6%

0.7%

1.1%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

US European Union Japan ASEAN India South Korea China Australia

Percent of Real GDP (%)

Private Equity Investment as a Percent of Real GDP

Three-Year Average, 2017-2019

Data Sources:UBS, Dealogic, The Economist Intelligence Unit; Data as of December 2019

Note: United States (U.S.); Association of South East Asian Nations (ASEAN)

•During 2019, Asian-focused private equity funds raised roughly $118 billion (USD). Year-to-date fundraising

negatively impacted by the global pandemic and geopolitical tensions.

•Since 2013, Greater China accounted for roughly 60% of aggregate capital raised in the Region.

•Venture capital and growth equity strategies dominate Asia private equity fundraising, but leverage buyout

strategies are emerging.

64 64

125 95 80

120

160

200

2013 14 15 16 17 18 19 20YTD

$ in Billions

Asia Private Equity

Fundraising Volumes

SE. Asia India Korea

Japan Pan Asia China

Australia & NZ

12% 12% 22% 14% 12% 6% 7% 2%

61% 70%

65% 74% 73%

72% 77%

60%

27% 18% 13% 12% 15% 22% 16%

38%

20%

40%

60%

80%

100%

2013 14 15 16 17 18 19 20YTD

Percentage (%)

Asia Private Equity

Fundraising Strategy

Others Venture / Growth Equity Buyout

ASIA FUNDRAISING

Data Source:Asia Venture Capital Journal (AVCJ); Data as of June 30,2020

Note: Greater China includes China, Hong Kong, and Taiwan;Southeast Asia (SEA);Australia /

New Zealand (NZ)

Data Source:Asia Venture Capital Journal (AVCJ); Data as of June 30,2020

•Fundraising data underscores an ongoing flight to quality.

•During 2019, fewer private equity funds closed, but with record sizes and well above target.

•Capital was concentrated among larger “brand name” funds, many that were well oversubscribed.

ASIA FUNDRAISING (CONT.)

200

400

600

800

1,000

1,200

2014 15 16 17 18 19

Number of Funds

Asia-Focused Funds Closed

Data Sources:Preqin, Bain &Company; Data as of March 30,2020

100

150

200

250

300

2014 15 16 17 18 19

Millions ($)

Average Size of Closed Funds

(40)

(30)

(20)

(10)

2014 15 16 17 18 19

Percentage (%)

Fund Size vs. Target

•During 2019, roughly $165 billion (USD) of private equity invested was allocated to Asia.

•Greater China remains the top private equity investment destination in Asia. Since 2013, the country accounted

for roughly 50% of private equity investments in the Region.

•Growth capital and leveraged buyouts continue to represent ~60% of all transactions.

ASIA INVESTMENT

82 72

111 108

100

150

200

250

2013 14 15 16 17 18 19 20YTD

$ in Billions

Asia Private Equity

Investment Volumes

India / South Asia Greater China SE. Asia

South Korea Japan Australia & NZ

51%

61% 48% 43% 52% 62% 66% 63%

44% 32% 40% 46% 40% 30% 27% 32%

20%

40%

60%

80%

100%

2013 14 15 16 17 18 19 20YTD

Percentage (%)

Asia Private Equity

Investment Strategy

Venture Capital Growth / Expansion Buyout

Data Source:Asia Venture Capital Journal (AVCJ); Data as of June 30,2020

Note: Greater China includes China, Hong Kong, and Taiwan;Southeast Asia (SEA);Australia /

New Zealand (NZ)

Data Source:Asia Venture Capital Journal (AVCJ); Data as of June 30,2020

•During 1H 2020, private investment in China and India grew 59% and 19%, respectively, over the same time

period last year.

•Meanwhile, South Korea and Japan have seen private equity investment activity fall. Going forward, structural

reforms and economic transitions are likely to lead to an increase in corporate carveouts, take privates, and

management buyouts.

ASIA INVESTMENT (CONT.)

Data Sources:Preqin, Bain &Company, Asia Alternatives

1H 2019 1H 2020

15 18

1H 2019 1H 2020

8 7

1H 2019 1H 2020

7 6

1H 2019 1H 2020

59%

19%

(17%) (21%)

Greater China India / SE. Asia South Korea Japan

Private Investment, $ in Billions

•Globally, dry powder with private equity managers totaled $2.5 trillion (USD) as of the end of December 2019.

•Dry powder levels in Asia have slowly accumulated in recent years due to caution around an uncertain macro-

economic outlook.

•Lower fundraising activity due to COVID-19 pandemic and LP risk appetite is likely to reduce Asian dry powder

levels.

DRY POWDER

200

400

600

800

1,000

1,200

1,400

1,600

2006 07 08 09 10 11 12 13 14 15 16 17 18 19

$ in Billions

Private Capital Dry Powder By Region

2006 –2019

North America Europe Asia Rest of World

Data Sources:Preqin, Bain &Company; Data as June 30,2020

Note: Compound Annual Growth Rate (CAGR)

CAGR

2006-2019

8.1%

8.3%

15.3%

8.3%

Data Source:UBS, Dealogic; Data as of March 31,2020

Note: Enterprise Value (EV), Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA);

Mergers &Acquisitions (M&A)

Data Source:Undisclosed Recommended Manager; Data as of June 30,2020

Note: Subset of Undisclosed Recommended Manager venture portfolio

•Prices in the Asia-Pacific region remain elevated. Increased competition across the region and soaring valuations

in technology sectors have sustained M&A multiples.

•Early stage venture valuations remain relatively low. Series B valuations continue an upward trajectory. Series C

and later stage entry valuations have seen a significant uptick in valuation.

MULTIPLES AND ENTRY VALUATIONS

10x

12x

14x

16x

18x

20x

2013 14 15 16 17 18 19

Purchase Price Multiples

EV / EBITDA (x)

Asia Private Equity

Median M&A Transaction Multiples

Asia US

$100

$200

$300

$400

$500

2013 14 15 16 17 18 19 20YTD

$ in Million

Asia Private Equity

Average Entry Valuations

Series A Series B Series C

•Since 2010, most major Asian currencies have depreciated against the USD.

•Low commodity prices, current account deficits, government regulations, tariffs, and a relatively strong U.S.

economy are to blame.

•The effect will be lower returns for Asian focused funds when measured in USD.

CURRENCY IMPACT

100

110

120

130

Currency Strength

(Index = 100)

Relative Strength of Select Asian Countries vs. USD

Indexed: December 2009 = 100

AUD CNY INR JPY KRW

Data Sources:Bloomberg, UBS, FEG

Note: Currency Strength is measured by the respective countries’ currency exchange rates against the USD on amonthly basis;Exchange rates are normalized at January 2010

•Median net IRRs in Asia range between 3.7% and 19.3%. Asia outperformed U.S. in 3 of 14 recent vintages.

•The spread between top and bottom quartile performing Asian PE funds is large.

•Manager selection is an important factor in seeking top quartile returns.

PERFORMANCE –NET INTERNAL RATE OF RETURN (IRR)

(5%)

10%

15%

20%

25%

30%

Net IRR

Median Net IRR

U.S. and Asia-Pacific

US Asia/Pacific

(5%)

10%

15%

20%

25%

30%

Net IRR

Net IRR Quartile Spread

Asia-Pacific Only

Median-Bottom Quartile Median-Top Quartile Median

Data Source:Thomson One; Data as of March 31,2020

Includes Buyout &Growth Equity, Venture Capital

Data Source:Thomson One; Data as of March 31,2020

Includes Buyout &Growth Equity, Venture Capital

•Median TVPIs in Asia range between 1.14x and 2.10x. Asia outperformed U.S. in 3 of 14 recent vintages.

•The spread between top and bottom quartile performing Asian PE funds is large.

•Manager selection is an important factor in seeking top quartile returns.

PERFORMANCE –TOTAL VALUE TO PAID-IN (TVPI)

0.5x

1.0x

1.5x

2.0x

2.5x

TVPI

Median TVPI

U.S. and Asia-Pacific

US Asia/Pacific

Data Source:Thomson One; Data as of March 31,2020

Includes Buyout &Growth Equity, Venture Capital

Data Source:Thomson One; Data as of March 31,2020

Includes Buyout &Growth Equity, Venture Capital

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

TVPI

TVPI Quartile Spread

Asia-Pacific Only

Median-Bottom Quartile Median-Top Quartile Median

•Distributions from seasoned Asian PE funds have been anemic. Median DPIs consistently underperformed

the U.S.

•The median DPI for a 2009 vintage Asian PE fund is 0.7x.

•Distribution activity in Asia increased in recent years, but activity still lags the U.S.

PERFORMANCE –DISTRIBUTION TO PAID-IN (DPI)

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

DPI

Median DPI

U.S. and Asia-Pacific

US Asia/Pacific

Data Source:Thomson One; Data as of March 31,2020

Includes Buyout &Growth Equity, Venture Capital

Data Source:Thomson One; Data as of March 31,2020

Includes Buyout &Growth Equity, Venture Capital

0.5x

1.0x

1.5x

2.0x

2.5x

TVPI

DPI Quartile Spread

Asia-Pacific Only

Median-Bottom Quartile Median-Top Quartile Median

•There are clear challenges to Asia’s economic rise both internally (e.g., financial risk, growing inequality, rule of

law and corruption) as well externally (e.g., geopolitical, trade disputes).

•Regardless, private equity stands to benefit from both long-term structural changes (e.g., demographic,

regulatory) and near-term macroeconomic transitions (e.g., price dislocations, liquidity concerns).

•Moderating growth is unlikely to slow the role of private equity in Asia, but it may impact deal type. LPs may find

success backing GPs who can provide sector-focused expertise in growing local businesses.

CONCLUSION

•This one on one presentation was prepared by Fund Evaluation Group, LLC (FEG), a federally registered investment adviser under

the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on

an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written

communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund

Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directed to: Fund Evaluation Group, LLC, 201 East

Fifth Street, Suite 1600, Cincinnati, OH 45202 Attention: Compliance Department.

•The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such

information provided by third parties. The information in this report is given as of the date indicated and believed to be reliable.

FEG assumes no obligation to update this information, or to advise on further developments relating to it.

•FEG, its affiliates, directors, officers, employees, employee benefit programs and client accounts may have a long position in any

securities of issuers discussed in this report.

•Index performance results do not represent any managed portfolio returns. An investor cannot invest directly in a presented index,

as an investment vehicle replicating an index would be required. An index does not charge management fees or brokerage

expenses, and no such fees or expenses were deducted from the performance shown.

•Neither the information nor any opinion expressed in this report constitutes an offer, or an invitation to make an offer, to buy or sell

any securities.

•Any return expectations provided are not intended as, and must not be regarded as, a representation, warranty or predication that

the investment will achieve any particular rate of return over any particular time period or that investors will not incur losses.

•Past performance is not indicative of future results.

•This report is prepared for informational purposes. It does not address specific investment objectives, or the financial situation and

the particular needs of any person.

•Investments in private funds are speculative, involve a high degree of risk, and are designed for sophisticated investors.

DISCLOSURES

Fund Evaluation Group, LLC | 201 East Fifth Street, Suite 1600 Cincinnati, OH 45202 | 513.977.4400 | information@feg.com | www.feg.com

Cincinnati │ Dallas │ Indianapolis

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OPPORTUNITIES IN TRANSITION: An Overview of the Asian Private Equity Market PDF Free Download

OPPORTUNITIES IN TRANSITION: An Overview of the Asian Private Equity Market PDF free Download. Think more deeply and widely.

Uploaded by cunningham.donna on 2/5/2026

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