Asia continues to outperform in terms of raising capital, setting new dry powder records

Anticipated pent up demand to drive acquisitions

HONG KONG, Jan. 28, 2021 /PRNewswire/ — The Asia Pacific private equity (PE) market is expected to continue to see strong activity, with the amount of capital allocated to the region at record highs, and the industry proving its resilience through the increased number of deal volume and average deal sizes despite the pandemic, according to KPMG’s latest PE outlook.

The report, titled Looking ahead: Private Equity trends for 2021, highlights key drivers for last year’s momentum and underlines trends expected to have a significant impact on the PE market in Asia Pacific in 2021.

Despite the current challenges, PE firms have demonstrated the ability to continue to deploy capital, help guide portfolio companies through the pandemic, and return capital to their investors, all of which has led to advantageous fundraising opportunities for top performing managers.

Andrew Weir, Global Chair, Asset Management and Real Estate, and Regional Senior Partner and Vice Chairman, KPMG China, says: “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. 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.”

Asia Pacific PE/VC capital reserves, or ‘dry powder’, has reached a record level of more than USD476 billion as of November 2020, representing 25% of the global total, above Europe (19%), according to alternative asset data provider Preqin.

Dry powder allocated to Asia Pacific to continue to outgrow the US and EMEA in 2021 as institutional investors continue to increase allocations toward Asia PE/VC, according to KPMG analysis.

Covid-19 slowed deal activity in the early part of last year, however activity picked up and accelerated throughout the second half. Early on, GPs focused on existing investments and bringing expertise to portfolio company management teams in order to help them navigate the new environment.

PE firms used their internal operational expertise, as well as specialised advisors to assist portfolio companies on areas such as customer behaviour changes; recapitalising the business and raising additional capital; reconfiguring supply chains; making strategic acquisitions and portfolio company bolt-ons, among many others. S

ignificant drivers in deal activity included portfolio company bolt-on and tuck-in transactions, take-private opportunities and PIPE investing, as well as revisiting prior uncompleted transactions.

Ryan Reynoldson, Partner, Co-Head of Private Equity, KPMG China, says: “In 2020, sectors such as education, logistics, healthcare and technology saw strong demand as they benefited from structural changes due to the pandemic. This momentum is expected to continue in 2021 within these business models and others that benefit from the new environment.”

The pandemic has also accelerated investors’ need for indications of long-term business sustainability, as well as financial performance. Initial indications from the capital markets show that ESG investments have performed at least as well as mainstream funds as the pandemic has intensified.

Bonn Liu, Partner, ASPAC Head of Asset Management, KPMG China, says: “Environmental, Social and Governance (ESG) investing is poised to have a breakout year as investors drive adoption and the asset class is increasingly viewed as a value driver. As ESG reporting becomes more of a priority for regulators, and investors flock to these funds, it has the opportunity to offer differentiation for PE investors.”

With a decline in PE exits in Asia Pacific in 2020 due to travel restrictions, 2021 is anticipated to be a record year for exits as investors seek to monetise existing investments.

For GPs looking to monetise investments this year, the Asia Pacific IPO market continues to show strong investor-led demand. It is expected that Asia Pacific exits by way of trade sale should increase significantly over their 2020 levels, given that these were only in the region of USD 29.5 billion, the lowest figure in several years.

Strong investor demand for IPO opportunities is also expected to continue into 2021 with the China IPO market having over 800 companies in its pipeline. This, after both the mainland China and Hong Kong exchanges registered their most active IPO markets since 2011.

Darren Bowdern, Partner, Head of Alternative Investments, KPMG China, concludes: “Asia Pacific witnessed a few mega deals in 2020, and this trend is expected to accelerate in the coming year. The anticipated Asia large cap PE pipeline in 2021 looks likely to be driven from China, Southeast Asia and Japan. For growth deals, China, India and Southeast Asia are expected to continue to be key markets. Although some volatility and uncertainty will remain, the industry track record for successfully adapting to and navigating changed landscapes suggests the industry is well positioned for a robust 2021 and beyond.”

In summary, KPMG expects the following 10 trends will have a significant impact on the PE market in Asia Pacific in 2021:

  1. Dry powder: Asia continues to outperform capital raising, setting new dry powder records.
  2. Asset class diversification: As Limited Partners (LPs) increase their exposure to Asia Pacific, PE firms will look to expand the breadth and depth of their investment strategies to grow assets under management.
  3. Socially responsible investing: Environmental, Social and Governance (ESG) investing is poised to have a breakout year as investors drive adoption and the asset class is increasingly viewed as a value driver.
  4. Tax themes for Asia: Shifting tax and regulatory landscapes are leading to thematic opportunities and a need to manage emerging risks.
  5. Deal activity: 2021 is positioned to be an active year for PE deal activity as record high dry powder coupled with the anticipated pent up demand should help drive acquisitions.
  6. Value creation: A greater emphasis on value creation identification and capture capabilities as PE seeks to increase alpha opportunities.
  7. Exits: 2021 is anticipated to be a record year for exits as investors seek to monetise their investments through multiple channels.
  8. Technology, digitalisation and consumer adoption: Consumers are rapidly driving disruption and investment focus by accelerating technology adoption, prioritising value for money and becoming more digitally savvy.
  9. Private debt: Asia Pacific private debt looks to become more significant in the next year by offering flexible solutions to address growing borrower demand.
  10. Real assets: Asia infrastructure, distressed real estate and renewables are expected to drive the real asset category in 2021.


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