The value of Asia-Pacific private equity deals jumped 41% in 2017 to a record $159 billion, while exits from existing deals likewise hit an all-time high of 710, according to a report released Thursday by Bain & Co.
The exits are up from 507 in the region in 2016.
For the latest year, “investors grew more confident in the region as the macro climate improved and company owners increasingly accepted private equity funding,” noted Suvir Varma, Singapore-based partner and head of Bain’s Asia-Pacific private equity practice.
At the same time, a record $225 billion of unspent committed capital, or dry powder — up from $170 billion at the end of 2016 — spelled growing challenges for private equity firms looking to put that money to work in the region at attractive valuations going forward, the report said.
If the region’s private equity industry has “never been healthier,” private equity firms will nonetheless face growing pressure to help the companies they invest in grow organically and control costs, as opposed to relying primarily on rising markets and economies to deliver value, said Mr. Varma.
Signs of a maturing Asia-Pacific market for private equity during the year include a growing openness of corporate owners in the region to sell majority stakes to private equity investors.
The report noted that the value of buyout deals jumped 94% from the year before to a record $72 billion, or 45% of overall deal value. That proportion compared to an average of 38% for the five years through 2016.
The “region now generates 22% of global buyout value, up from 13% in 2016,” the report said.
Meanwhile, the region’s share of global private equity assets under management climbed to a record 23%, up from 9% a decade before, the report said. A total assets under management figure was provided.
Money raised by private equity general partners for funds focused on the Asia-Pacific region rose to $66 billion in 2017, up from $62 billion in 2016 but still below the record $73 billion raised in 2014, the report said.
A record $9.3 billion Asia-Pacific buyout fund raised by KKR — KKR Asian Fund III — during the year lifted the weight of regional funds to 32% of that $66 billion total from 21% the year before, while the weight of country-specific funds dropped to 68% from 79%.
Greater China accounted for 45% of overall private equity activity in 2017, in line with previous years, while India, Japan and Southeast Asia represented more than 10% of deal value each, the report said.
The median internal rate of return for Asia-Pacific-focused funds improved to 11.5% as of June or September 2017, depending on fund reporting, up from 10.8% in at the end of 2016 but below the 12% level Bain reported for the end of 2015.
While those returns are below the 16% level many limited partners in those funds target, Bain noted that top quartile returns “are on track to achieve an 18.4% net IRR.”
