In this edition, we explore the perspectives of leading asset allocators and fund managers, examining how the smart money is navigating Asia’s shifting private equity landscape and positioning for the next wave of market shifts.
Chasing alpha
Asia’s private equity story is no longer about arbitrage or one-off access. It is being shaped by mid-market companies as engines of value creation, continuation vehicles as tools to manage liquidity and governance, and the rise of local capital.
These insights reflect the perspectives shared by leading limited partners and general partners at DealStreetAsia’s 10th Annual PE-VC Summit, highlighting how market participants are examining the region’s complexity and opportunity.
The real challenge for investors lies in execution: selecting the right partners, the right structures, and the right entry points in a region that is simultaneously indispensable and complex.
Fundraising is challenging, not just in Asia but globally, affecting both smaller and larger players. Yet increasing depth across market segments is making the deal landscape more interesting. Historically, other regions have seen many secondary transactions—secondary buyouts, tertiary buyouts —with high sponsor-to-sponsor activity.
That is now emerging in Asia as well, thanks to sufficient depth in each segment. It appears there is a baseline beta available, alongside opportunities to harvest alpha.
So, what formats are emerging to capitalise on them?
New tools
Continuation vehicles are a clear example. Once a niche segment, they now account for about half of the secondary market. Why are they growing so fast? First, they are a tool that GPs are getting better at using. Second, they respond to the wider bid-ask spreads in the current environment: GPs can continue investing in assets through a mix of new and existing LPs, meeting multiple demands at once.
Are continuation vehicles here to stay? Evidence suggests yes—they are likely to facilitate growth across the asset class over time.
Liquidity continues to be a key risk for asset allocators, which is where evergreen or open-ended fund structures play a critical role. The question of whether fund formats will continue to evolve is met with strong affirmation from the smart money, underscoring their growing importance in addressing liquidity needs. Innovation in private equity tools allows investors to design portfolios that were previously unattainable.
The takeaway is clear: fund formats will continue to expand, innovation will accelerate, and the velocity of private equity will increase.
Pricing question
Valuations remain unsettled across the region. Pricing is shaped by two forces: bottom-up fundamentals and top-down liquidity. China, for example, has faced weak sentiment, scarce liquidity, and depressed valuations, though some sectors like renewables are exceptions.
India, Japan, and Australia, by contrast, have seen fuller valuations as capital rotates away from China. Amid these dynamics, one theme stood out: the mid-market is emerging as the region’s true value creation engine.
As an investor put it, “I don’t think mid-market deals are being undervalued. The reality is that the mid-market is the value creation engine for all future deals that follow.”
The region seems to be constantly in the dynamic process of repricing and rediscovery. How will investors reconcile these dynamics with the desire for stable returns? Which markets will ultimately offer the best combination of growth, governance, and exit optionality?
Focus markets & strategies
Japan’s private equity sector is at a critical juncture, supported by structural tailwinds and governance reforms, but faces challenges including talent shortages, ageing technology sectors, and regulatory constraints.
China’s market is seeing renewed investor engagement despite macroeconomic and geopolitical headwinds, with local fund managers returning to fundraising and demonstrating that disciplined strategies can sustain interest.
The Gulf-Asia corridor is gaining attention as a growth avenue, supported by economic diversification, regionalisation of supply chains, and emerging investment opportunities beyond traditional oil sectors.
Private credit in Asia is evolving, with larger pools of capital from pension plans, insurers, and private wealth. Success in the sector depends on experience in restructuring, operating through cycles, and understanding local market and policy dynamics.
What’s working for private lending in Asia includes having in-house restructuring capability and the experience of operating through cycles. Private credit has been in Asia long enough for LPs to look at specific managers in specific markets to evaluate the track record.
This evolution in private credit also underlines the broader trend: Asia’s private equity markets cannot be considered in isolation. The performance of the region is closely linked to broader global dynamics and investor expectations, particularly as developed markets continue to outperform.
Going local
The challenge for Asian GPs has consistently been managing the J-curve and ensuring timely returns to investors. While Asia benefits from strong macro tailwinds despite global issues, there is a clear emphasis on higher discipline among GPs to extract value more efficiently.
Much of the world’s capital continues to reside in the West, and in fact, Asia itself represents a fast-growing pool of capital that has historically been overweight in Western markets.
Could a shift toward local investment in their own markets support allocations within Asia? Local capital is increasingly influencing who receives funding and how allocations are distributed. In Japan, foreign investors may find it increasingly challenging to gain scale due to the presence of large local pools of capital. In India, growing domestic capital and increasing institutional participation are notable trends.
Sovereign investors in the region, historically focused on overseas investments, may alter their strategies in response to geopolitical developments, highlighting a theme to watch closely.
It is hard to ignore that the US and other developed markets have significantly outperformed Asia. Coupled with geopolitical tensions between China and the US, and in the post-COVID environment, Asia’s private equity markets have probably experienced the weakest sentiment since the financial crisis.
For this dynamic to fundamentally change, some form of rebalancing is required. This could involve returns in developed markets normalising, or the exit environment in Asia improving from the bottom to become somewhat more favorable than in recent years.
Only then would the gap between developed markets and Asia narrow enough to create a meaningful push of capital into the region. Navigating the region’s fragmented markets requires hyper-local strategies, and Asia’s private equity landscape is actively reshaping itself. The coming cycle of deals will reveal whether these shifts translate into sustainable value creation across the region.
Top Developments
Fundraising
Seraya Partners, the Singapore-based private equity firm focused on next-generation infrastructure, is understood to be raising its second fund with a target size of over $1 billion.
Swiss impact investor responsAbility Investments has made a fourth close of its $500-million Asia Climate Strategy, following a commitment from the IFC.
TVM Capital Healthcare Asia has made the first close of its fund targeting non-hospital assets in Southeast Asia.
India’s Somerset Indus Capital Partners announced that it is in the final stages of closing its third fund with total investor commitments nearing $250 million.
The LP View
Large institutional LPs are showing renewed interest in the lower- and mid-market after years of concentrating on mega-funds. A shift that has reignited interest in emerging managers, with some blue-chip endowments returning to seed or back sizable first-time funds—activity not seen in the last five to six years, stated a senior executive at Unigestion.
Deals
Indian commercial interior design startup Flipspaces has raised $50 million in its Series C funding round from UAE-headquartered CE-Invests, Singapore’s Panthera Growth Partners, and Japan’s SMBC Asia Rising Fund (Japan).
In M&As, Indian oncology chain Omega Hospitals, backed by a fund managed by Morgan Stanley Private Equity (PE) Asia, is in talks to acquire a majority stake in a smaller rival.
