<article>Private equity fundraising in the Asia Pacific region encountered a stalemate in 2023.</article>

Private equity fundraising in the Asia Pacific region encountered a stalemate in 2023.
According to Deloitte’s inaugural &#8216;Asia Pacific Private Equity 2024 Almanac&#8217; report, only 385 funds in the APAC region secured a final close in 2023, down 51.5% from the 795 funds that closed in the previous year. 
The aggregate capital raised by these funds—buyout funds, growth and VC funds, secondaries, fund-of-funds, and special situations funds—also halved to $63.2 billion in 2023, the report added.
The report covered PE funds focused on Japan, South Asia, China, Australia and New Zealand, Korea, Southeast Asia
<img loading="lazy" decoding="async" class="aligncenter wp-image-388599 size-full" src="https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.31.08%E2%80%AFPM.png?resize=640,224" alt="" srcset="https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.31.08%E2%80%AFPM.png?w=2106 2106w, https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.31.08%E2%80%AFPM.png?resize=300,105 300w, https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.31.08%E2%80%AFPM.png?resize=1024,358 1024w, https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.31.08%E2%80%AFPM.png?resize=768,268 768w, https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.31.08%E2%80%AFPM.png?resize=1536,537 1536w, https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.31.08%E2%80%AFPM.png?resize=2048,716 2048w" sizes="(max-width: 2106px) 100vw, 2106px" data-recalc-dims="1" />
With reducing public market valuations limited partners—or LPs who inject capital into the funds—were overexposed to private equity (PE). This caused a standstill as many LPs held off on new investments until they received returns from existing PE funds.
“To reinvest, LPs required distributions from current fund investments, which resulted in a fundraising impasse. The difficulty in raising funds was evident from the average 20+ month time for funds to reach final close,” explained Keoy Soo Earn, Deloitte Private and Private Equity Leader, Deloitte Southeast Asia in an interaction with DealStreetAsia.
Growth funds and venture capital funds—which raised $31 billion in 2023—were the hardest hit, down by approximately 78% in terms of capital raised from three years ago. 
<img loading="lazy" decoding="async" class="aligncenter wp-image-388629 size-full" src="https://media.dealstreetasia.com/uploads/2024/03/Deloitte-Growth-and-buyout.jpg?resize=581,362" alt="" srcset="https://media.dealstreetasia.com/uploads/2024/03/Deloitte-Growth-and-buyout.jpg?w=581 581w, https://media.dealstreetasia.com/uploads/2024/03/Deloitte-Growth-and-buyout.jpg?resize=300,187 300w" sizes="(max-width: 581px) 100vw, 581px" data-recalc-dims="1" />
But buyout funds also faced challenges, with &#8220;many funds reducing their target size and LPs concentrating their limited investments into well-known, established funds&#8221;. Buyout funds raised only $20.6 billion in 2023.
<img loading="lazy" decoding="async" class="aligncenter wp-image-388630 size-full" src="https://media.dealstreetasia.com/uploads/2024/03/Deloitte-buyout-funds.png?resize=593,341" alt="" srcset="https://media.dealstreetasia.com/uploads/2024/03/Deloitte-buyout-funds.png?w=593 593w, https://media.dealstreetasia.com/uploads/2024/03/Deloitte-buyout-funds.png?resize=300,173 300w" sizes="(max-width: 593px) 100vw, 593px" data-recalc-dims="1" />
The two largest funds that closed in 2023 were Bain Capital Asia V at $7.1 billion and Primavera Capital Fund IV at $4.1 billion. This represented 54% of the total buyout funds raised in Asia Pacific in 2023 noted the report.
<img loading="lazy" decoding="async" class="aligncenter wp-image-388632 size-full" src="https://media.dealstreetasia.com/uploads/2024/03/Deloitte-buyout-funds-1.png?resize=640,357" alt="" srcset="https://media.dealstreetasia.com/uploads/2024/03/Deloitte-buyout-funds-1.png?w=1165 1165w, https://media.dealstreetasia.com/uploads/2024/03/Deloitte-buyout-funds-1.png?resize=300,167 300w, https://media.dealstreetasia.com/uploads/2024/03/Deloitte-buyout-funds-1.png?resize=1024,571 1024w, https://media.dealstreetasia.com/uploads/2024/03/Deloitte-buyout-funds-1.png?resize=768,428 768w" sizes="(max-width: 1165px) 100vw, 1165px" data-recalc-dims="1" />
<h3>High amounts of dry powder</h3>
Over the past decade, Asia Pacific-focused PE dry powder increased 344% to reach a record high of $639 billion in 2023. This accounts for 23.7% of global PE dry powder.
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<img loading="lazy" decoding="async" class="aligncenter wp-image-388598 size-full" src="https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.30.18%E2%80%AFPM.png?resize=640,306" alt="" srcset="https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.30.18%E2%80%AFPM.png?w=2108 2108w, https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.30.18%E2%80%AFPM.png?resize=300,143 300w, https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.30.18%E2%80%AFPM.png?resize=1024,490 1024w, https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.30.18%E2%80%AFPM.png?resize=768,367 768w, https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.30.18%E2%80%AFPM.png?resize=1536,734 1536w, https://media.dealstreetasia.com/uploads/2024/03/Screenshot-2024-03-21-at-4.30.18%E2%80%AFPM.png?resize=2048,979 2048w" sizes="(max-width: 2108px) 100vw, 2108px" data-recalc-dims="1" />
The Deloitte report concluded that the share of APAC PE dry powder in the global total is disproportionally high since APAC PE deals accounted for only 15.2% of global PE deals in 2023.
“In Southeast Asia, there’s still a lot of dry powder to be deployed. Deals are undoubtedly challenging in an environment rife with global uncertainty, but the current scenario does suggest some degree of predictability,” said Keoy.
The imperative to deploy previously amassed capital becomes pressing as prolonged inaction could pose challenges in meeting return commitments, the report said. The prevailing mindset revolves around seizing favourable deals within a more foreseeable environment, despite the backdrop of higher interest rates.
<h3>Japan tops in buyout investments</h3>
Even as geopolitical tensions, supply chain disruptions, declining consumer confidence, high inflation, and higher capital costs dampen transaction volumes, the impact is varied across geographies.
Japan for instance emerged as a standout performer. The country saw the count and value of buyout investments grow year-on-year by 4.6% to 252 deals and 48.5% to $38.8 billion respectively.
South Asia, primarily India, experienced robust growth in 2023, with buyout deal volume and value growing by 15.4% and 66.1% respectively, totalling 180 deals and $18.5 billion.
Australia and New Zealand experienced a drop in deal value to about half of that seen in 2022 and China lost its top spot, falling into second place despite the inclusion of multiple large portfolio management transactions (Wanda, Chindata, Vistra).  The report added that excluding these three deals with a value of $14.9 billion, the Chinese deal value would be less than that of India, and quite close to Korea, which held the fourth slot.
The overall Asia Pacific market for buyout investments appeared to remain flat in 2023 at $116 billion vs. $109 billion in 2022. 
<img loading="lazy" decoding="async" class="aligncenter wp-image-388634 size-full" src="https://media.dealstreetasia.com/uploads/2024/03/Deloitte-geography.png?resize=555,644" alt="" srcset="https://media.dealstreetasia.com/uploads/2024/03/Deloitte-geography.png?w=555 555w, https://media.dealstreetasia.com/uploads/2024/03/Deloitte-geography.png?resize=259,300 259w" sizes="(max-width: 555px) 100vw, 555px" data-recalc-dims="1" />
Despite investors&#8217; hopes, 2023 did not represent the long-awaited return to normal following the disruption that COVID-19 caused. Many considered 2023 to be the end of an era for private equity which was fraught with challenges like a slowing economy, increased debt costs and fundraising difficulties. But in hindsight, 2023 can be looked at as the year Asia Pacific private equity matured, according to the report.
“In tougher times, private equity must refocus its efforts on creating value within portfolio companies rather than solely relying on market trends to drive returns,” said Keoy.
Keoy explained that such a shift would require a more active engagement with portfolio companies, and move beyond financial engineering tactics to actively improve operational efficiencies, strategic positioning, and overall performance. And this focus of private equity firms on delivering tangible value is indicative of the industry&#8217;s maturity.
<h3>&#8216;Creative structuring&#8217; to ensure liquidity for LPs</h3>
Deloitte’s report added that with operational improvements at the forefront, PE funds sought out creative routes to LP liquidity. This included continuation funds, partial exits, and strip sales or portfolio sales to secondary funds or fund-of-funds. 
In Keoy’s opinion, PE firms have been using creative structuring for some time now because they need to find ways to maximise the value of their portfolio companies. Rather than pursuing new deals, there was a focus on internal optimisation. They looked at the synergies among their investments.
Exits remained low in 2023, with 329 exits worth a total of $60 billion, with the average exit value declining 25% to $182.4 million. 
<img loading="lazy" decoding="async" class="aligncenter wp-image-388636 size-full" src="https://media.dealstreetasia.com/uploads/2024/03/Deloitte-Exits.jpg?resize=601,680" alt="" srcset="https://media.dealstreetasia.com/uploads/2024/03/Deloitte-Exits.jpg?w=601 601w, https://media.dealstreetasia.com/uploads/2024/03/Deloitte-Exits.jpg?resize=265,300 265w" sizes="(max-width: 601px) 100vw, 601px" data-recalc-dims="1" />
The initial valuations at the time of the investments were higher. This led to a gap between the expectations and current market realities. This valuation misalignment further complicates potential trade sales, as buyers may hesitate to meet the expected exit valuations.
“This is why there were fewer exits by private equity players last year,” said Keoy.
Speaking on the outlook for 2024 he said: “It appears that early 2024 market activity will be similar to that of the previous year due to the absence of any apparent near-term catalysts to alter the market momentum.”
Geopolitical tensions and uncertainties surrounding elections are expected to persist, leading GPs to adopt a cautious approach towards both exits and new investments, stated the report. However, with the expected interest rate cuts this year among others, M&amp;A activities may start to rise by the second half of 2024, believes the executive.

Pramod Mathew

According to Deloitte’s inaugural 'Asia Pacific Private Equity 2024 Almanac' report, only 385 funds in APAC secured a final close in 2023.

Funds closed and capital raised by APAC's PE firms halved in 2023: Deloitte

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Funds closed and capital raised by APAC's PE firms halved in 2023: Deloitte

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