This edition examines insights from DealStreetAsia Leadership Roundtable: China Series, recently held in Hong Kong, where experts discussed whether China’s private equity landscape is defined by optimism or pragmatism. We also take a quick look at geopolitical concerns, which are back in the spotlight.
Is pragmatism paving the way for optimism?
China’s private equity market seems to be a blend of caution and opportunity. Intense competition and uneven regional prospects stand in contrast with structural tailwinds and supportive financing, offering select sectors meaningful potential. The key to generating long-term returns, in this backdrop, lies in disciplined deal selection and experienced managers.
Doug Coulter, Partner at LGT Capital Partners, described China as the best opportunity in Asia and one of the most compelling private equity markets globally. While 2021 vintage investments may underperform, he sees 2025–2027 as potentially very strong years. “Those willing to invest now are likely to benefit,” he predicted.
Drawing a parallel between China and Japan six or seven years ago, David Wong, Partner and Co-Head of Private Equity at PAG, said, back then, the asset prices were low and funding costs were accommodative. Japanese buyouts were completed at around six to seven times EBITDA with attractive financing and high leverage.
Even though Japan was not a leading private equity destination at that time, the fact is that several transactions from that period performed strongly. This, in turn, shaped a more positive view of Japanese private equity in subsequent years.
China now seems to display similar features, such as low funding costs and recalibrated asset prices.
There is also a difference in the government bond yield. While Japanese government bond yields have since risen above 2%, increasing leveraged financing costs, Chinese government bond yields have fallen below that level, with leveraged buyout financing reportedly available at comparatively competitive rates.
China’s private equity market could, therefore, be sitting at an interesting juncture, aided by a combination of valuation adjustments and supportive financing conditions, which may result in an upside as deals mature over the coming years.
Steve Jia, Partner and Head of Buyout at HSG, emphasised the importance of selecting the right deals at the right time. The HSG executive observed positive shifts in supply and demand, interest rates, and macro factors. While not every opportunity is equally competitive, the focus should be on situations where private equity can genuinely add value.
The market presents a wide range of cases. However, these characteristics have remained consistent over time, Jia said, adding that the private equity market in China is maturing and appears better positioned than in previous vintages.
However, Leon Meng, Founding Managing Partner & CEO of Ascendent Capital Partners, shared that not all parts of China present good opportunities. So, it is important to choose a manager with experience across market cycles and who can identify mispriced opportunities and run companies effectively, he added.
Notwithstanding the tough broader investment landscape in China, the market holds promise of opportunities that can generate attractive returns.
Philip Yifei Bao, Director of Private Equity at Mubadala, with a specific focus on buyouts, touched upon several structural tailwinds, including lower interest rates, reduced competition, and favourable FX movements. The Mubadala executive believes that there is likely more upside to be realised in the years ahead.
He stressed the importance of focusing on high-quality, resilient, and durable companies. These companies will be able to weather challenges while still allowing sufficient margin for error to achieve good returns, he observed.
Net-net, China’s private equity market is in a period of adjustment where opportunity exists alongside competition and execution risk. This, in turn, highlights the importance of discipline, selectivity, and experienced managers.
For deeper insights, download the full PDF of the DealStreetAsia Leadership Roundtable: China Series.
Factoring risk
Geopolitical concerns are once again at the forefront as investors gauge their impact on markets and capital flows.
The Gulf sits at the centre of global energy flows, trade routes, and is an important pool of capital. The possibility of prolonged disruption could force businesses and investors to assess risks tied to supply chains and capital deployment.
Some companies and shareholders appear to be taking advantage of a window of opportunity, raising capital while markets are still open and liquidity is available.
Some of these deals may or may not have been triggered by the ongoing crises, but if there is volatility, markets will slow. The impact of this current crisis really depends on how long the situation persists. If the situation does drag on, from the private market perspective, with the Middle East being a major investor, both inbound and outbound deal flows could be affected.
Geopolitical tensions are already factored into investment decisions. What remains to be seen is how investors are adjusting their strategies to manage this risk.
Top Developments
Deals
CVC Capital Partners is said to have begun preliminary discussions with potential investors to explore a stake sale in the Indonesian hospital operator PT Siloam International Hospitals Tbk.
CVC Capital Partners and the founding shareholders of Indonesia-listed PT SOHO Global Health Tbk are weighing options to unlock liquidity in the pharmaceutical group after CVC’s recent attempts at a stake sale appear to have stalled.
KKR is seeking around $500-600 million in financing to fund the acquisition of Singapore’s XCL Education Holdings.
Indian electronics manufacturer SFO Technologies has raised over Rs 750 crore ($82.3 million) in fresh funding in a round led by Trident Growth Partners, headed by former Premji Invest and IFC executives, and Amicus Capital Partners, with participation from other investors, including Anicut Continuum Equity Fund and HDFC AMC Select AIF FOF-1.
Interviews
India’s homegrown investment firm ChrysCapital is sharpening its focus on operational value creation and plans to expand the headcount of its operational partners to help strengthen execution for portfolio companies, improve margins, and accelerate growth.
Private equity firm Somerset Indus Capital Partners, which is nearing the close of its third fund, views India’s healthcare sector as largely resilient even amid global economic headwinds.
