Negative sentiment on China has dampened fundraising figures in Asia-Pacific, which could reach its lowest level in a decade this year, according to Preqin data.
Private equity fundraising in Asia-Pacific was $8.3 billion in the first half of the year, which was only 22% of the total amount raised in the region in all of 2022.
The aggregate capital of China-focused funds declined to $115.9 billion in the second quarter from $141.9 billion in the first quarter of the year.
The impact of China's slump in fundraising has been felt by fund managers across the region.
"China has played a very large role in driving deal volume, fundraising and investment gains in the last five-plus years," said Heath Zarin founder, chair and CEO of Hong Kong investment firm EmergeVest. "Given that a fairly large number of institutional capital allocators from outside of the region are more wary and risk averse on China right now, that continues to have a dampening mood for Asian private equity sentiment."
He noted that anecdotally, there has been interest in Southeast Asian prospects and the New Zealand market, but as a supply chain and logistic-focused fund manager, he remains bullish about investment opportunities in China in the medium term.
These opportunities extend beyond investing purely in onshore China, and can include investing in a Chinese company and helping it grow its operations or supply base outside of China.
"If you're going to set up an operation for producing electronic goods in a new Southeast Asian country, you can find a local entrepreneur or a local smaller business to invest in and to do that (or) you can also help a Chinese business that has that manufacturing capability in China to expand across multiple countries," he said.
EmergeVest has $850 million in assets under management.
In Southeast Asia, the private equity space has been robust, said Janice Leow, partner and head of global investor EQT's Southeast Asia private equity team.
EQT's Asian private equity platform has close to $40 billion total in assets under management.
"The tailwinds are extremely strong. I will say now you'll see a lot more large deals, (whereas) in the past it was a lot more on the midmarket and growth equity type of deals. Now we're starting to see a lot of sizable deals in Asia-Pacific," she said in a video interview from Singapore.
"So definitely we've seen some signs of maturity in the market. And this really ties to the growth of companies as well growing with the middle class, the population growth and also the generally rising GDP and foreign investment in the region," she added.
Markets such as India, Japan and Australia are also benefiting from the diversification that foreign investors are trying to push for, she said. Southeast Asia in particular has good dynamics, such as low costs of labor and a young, highly driven and digitally savvy population, she added.
She remains cautiously optimistic about the next 12 to 18 months as there are uncertainties about certain markets entering a macro slowdown or a political slowdown, but there are interesting segments such as in healthcare that are generally recession-proof.
"We stay diversified, (so) we are able to ensure that over the life cycle of our fund, we can deploy in different geographies (and that's) why we stay invested in multiple sectors," she said.
"One thing about Asia is that most of the countries are still developing countries. So the ability to forecast and predict is maybe less than what you would get in the U.S. … So what you have to do is ensure that you are diversified and always be in touch (with an) on the ground presence," she added.