In this week’s edition, we look at the return of private equity in China after a prolonged period of sluggish activity and turn the spotlight on Japan, which has absorbed massive capital from global investors among all Asian markets in recent years.
China PE: Selective revival driven by strict discipline
China is finally drawing renewed interest from global investors after a few challenging years. But the days of easy money, i.e., relying on market beta, multiple expansion, and high-leverage arbitrage to generate alpha, are firmly in the past.
While China’s rapid tech advancements and selective stock market heat around recent AI listings are fuelling a return of fundraising and dealmaking activity, investors are counterbalancing headline enthusiasm with “a healthy dose of suspicion.”
Today, global allocators are selectively approaching China’s recovery through the lens of high conviction, strict capital discipline, operational transformation, and structured risk mitigation.
Many LPs are still healing from the wounds of the 2020-21 vintages, when record-high multiples eventually led to valuation markdowns during the subsequent down cycle. For 2026, the core concern is whether it will manifest as another hype-driven vintage that ends up destroying capital.
For LPs, it still matters for China-focused fund managers to stay on course. But “customised solutions” and fund flexibility are being more actively encouraged to enable faster capital returns and to avoid decade-long lock-up risks as geopolitical uncertainty becomes the new norm for investing.
For China-focused GPs seeking global capital, the benchmark has been completely rewritten. Achieving target returns now requires significantly stronger earnings growth than in the past. As Bain & Co. partners put it, “12 is the new five,” which means delivering 20%+ IRR now requires about 12% annual EBITDA growth from 5% a decade ago.
This is not a marginal shift; it is a total restructuring of what a GP must execute nowadays to build “a moat” as a top-tier fund manager rather than a mere deal-sourcing shop. To deliver these metrics and restore conviction among global investors, GP speakers at DealStreetAsia’s Asia PE Leadership Summit in Hong Kong outlined a highly disciplined playbook.
First, Chinese GPs are prioritising tangible value creation and Distributed to Paid-In Capital (DPI) over the typical impulse to rush back to the fundraising market despite massive global hype around the country’s breakthroughs in AI and robotics.
For example, tech-focused T-Capital is focusing entirely on maximising DPI on its fully deployed debut USD fund this year, before scheduling a new USD fundraising plan in 2027. The mandate is clear: Do not overpay when the market is frenetic, as inflated entry valuations always kill returns.
Second, GPs can no longer depend on a uniform PE strategy. Generating “full deal returns” requires answering a fundamental question before an investment decision is even made: Why are we the right buyer for a particular asset? Winning strategies require “a special angle” to differentiate your value creation and growth plans from your competitors’, said a speaker from CDIB Capital International.
With this driving highly defensible cash flows and long-term compounding potential, the portfolio company will retain its appeal to potential buyers even in down cycles.
Third, like global LPs who emphasise geographic diversification, Chinese GPs with cross-border capabilities are utilising regional footprints to insulate portfolios from single-market volatility.
HOPU Investments navigated the ebb and flow of China’s exit environment through portfolio diversification across multiple Asian markets. They returned $1.2 billion to LPs in 2025, balancing H1 exits from non-China assets with H2 exits featuring a strong China component.
This also applies to PE deal sourcing. As China’s relatively young corporate landscape finally yields high-quality businesses for sale, control-oriented PE funds are enjoying a robust pipeline. Those capable of managing complex cross-country, cross-region transactions have an upper hand in accessing proprietary deals around Chinese-owned “orphan assets” overseas, as well as multinational corporations (MNCs) recalibrating their Chinese exposure.
For global investors, PE in China is no longer a binary “in or out” allocation. Instead, it requires sophisticated, structured, and well-diversified models that price in macro geopolitical risks and shifting domestic market dynamics.
As market strategists at HarbourVest wrote: “China is playing a long-term, structural game, and it is willing to absorb near-term economic pain to claim future victory.”
Japan’s spot in Asia PE 3.0
Japan has become one of the clearest beneficiaries of capital rotating out of China.
Japan stood out as the only market in the region to post growth in both deal value and deal count, according to Bain & Company’s APAC Private Equity Report 2026. At a time when fundraising and exits remain subdued across much of Asia, that distinction carries weight.
Separately, the Japan PE Association reported in 2025 that, for 2011-2020 vintages, there was a 17.7% since-inception IRR as of 2023. IRRs in 5-year and 10-year periods up until 2023 stood at 14.5% and 16.9% respectively, still comfortably ahead of public market benchmarks.
“It comes down to returns, and investors have figured out how to make money in Japan,” BDA Partners Managing Partner Paul DiGiacomo said at our recent Asia Private Equity Leadership Summit in Hong Kong.
Indeed, Jerry Lam, Executive Director of Peterson Group (Wyndham Capital), added that performance considerations made his firm shift from SE Asia to allocate to other Asian markets like Australia and Japan, where general partners have demonstrated stronger exit execution.
Fundraising momentum reflects that enthusiasm. Japan-focused funds raised $15 billion, up 12% year over year, making the country the largest contributor to APAC private equity fundraising. At the same time, Japanese LPs are also increasingly investing in the home market.
While many believe Japan can absorb this flow of capital, some allocators remain mindful of what happened across Asia in the past. Between 2010 and 2020, too much capital was chasing the China growth story – a mistake few would want to repeat.
“Everybody’s been leaning toward Japan and India over the last couple of years, but there needs to be guardrails around how much capital you allocate into a market, so you don’t end up in the same situation as what happened with China,” said Amanda Chen, Principal, Primary Investments, at HarbourVest.
Both LPs and GPs must distinguish between the strong macro narrative headlines and fundamentals. Fund flows faster than fundamentals can make for frothy valuations.
Still, investing in APAC is about diversification. While Japan may be attracting renewed attention, capital will continue to weigh opportunities across India, Australia and, still, China. And, investors will still prioritise distributions over any single market rotation.
Meanwhile, the ongoing conflict in the Middle East may have added another layer of uncertainty to an already fragile dealmaking environment. After years of navigating COVID, inflation spikes, rate hikes and trade tensions, sponsors are increasingly taking geopolitical volatility as part of the normal operating backdrop.
“Deals are delayed, not paused” has become a common refrain.
Indeed, investors at the summit said the immediate impact has been felt more in pacing than appetite, and few expect activity to stop entirely.
The implications, however, vary across strategies. In buyouts, sponsors are becoming more cautious on cyclical sectors and businesses exposed to energy prices, logistics, or consumer confidence. Financing markets also tend to become more conservative during periods of geopolitical stress, potentially widening spreads or complicating syndication for larger leveraged deals.
Still, volatility can create opportunities for firms with available capital to negotiate better valuations or pursue corporate carve-outs from companies seeking liquidity.
Top PE Developments
Deals
Jardine Matheson Holdings has agreed to acquire I-MED Radiology Network from Permira’s funds and other shareholders, in a deal valuing the business at A$3.4 billion ($2.4 billion). The deal values I-MED at around 11.5 times projected adjusted EBITDA for the year ending June 2026.
Bank SMBC Indonesia has agreed to sell a pension-related loan portfolio worth nearly $1.12 billion to state-owned lender Bank Tabungan Negara.
Hahn & Co is exploring a secondary sale to unlock liquidity from its investment in US-based medical aesthetics company Cynosure Lutronic.
Healthworld Hospitals, a healthcare platform headquartered in Durgapur in eastern India, has roped in consulting firm Merfin Advisors as it prepares to raise close to $25 million in fresh capital.
Fundraising
IFC is eyeing an investment of up to $50 million in a BlackRock-managed infrastructure credit fund targeting low-carbon industrial growth across Southeast Asia.
China-focused venture capital firm BAI Capital announced the first close of its latest US dollar fund at $600 million, targeting $800 million in the final close.
JM Financial Asset Management announced the launch of its second credit-focused fund, targeting a corpus of Rs 1,000 crore ($105 million) with a greenshoe option of an additional Rs 1,000 crore.
People
EQT has appointed Hari Gopalakrishnan and Nicholas Macksey as co-heads of its Private Capital Asia business.
