Economic uncertainty, high interest rates and ongoing geopolitical tensions contributed to the decade-low fundraising in Asia Pacific’s private equity market, according to a Bain & Co report.

Asia Pacific-focused private equity funds raised just $100 billion in 2023, according to Bain & Co’s «Asia-Pacific Private Equity Report 2024». This marks a 26 percent year-on-year drop and a 10-year low. In comparison, global fundraising fell 17 percent to $1.13 trillion.

«Many investors put dealmaking on hold in 2023, worried about slowing economic growth across much of the region, persistently high interest rates that raise the cost of PE debt, and volatile public stock markets,» the report said. «Ongoing geopolitical tensions and global conflicts reinforced investors’ concerns. Unable to fathom what was ahead, funds retrenched to wait out the storm.»

Regional Downturn

Within China, investors remained cautious with deal value decreasing 58 percent compared with the previous five-year average. As a result, China’s share of total APAC deal value fell to 28 percent, compared to the previous five-year average of 43 percent.

Elsewhere, economic uncertainty also affected investors with decreases in deal value compared to the previous five-year average across Australia-New Zealand (-63 percent), Southeast Asia (-47 percent) and India (-41 percent).

Japan A Bright Spot

Amidst the less-than-promising market conditions, Japan offered a bright spot with increased activity. Deal value rose 183 percent compared to the previous five-year average. Compared to the previous five-year average of 7 percent, Japan’s share of APAC deal value rose to 30 percent to become the region’s top market for the first time.

«Investors found comfort in Japan’s deep pool of target companies with performance improvement potential, its stable regulatory environment, and persistently low interest rates,» the report said.

New Growth Opportunities

Given the challenges in APAC private equity, there is growing interest in new opportunities from other asset classes. This includes private credit which grown 24 percent per annum in the past five years to $155 billion in 2022. Infrastructure is also drawing interest after growing 20 percent per annum from 2012 to 2022.

«In a turbulent year for private equity, many leading funds started to explore alternative asset classes, including infrastructure and private credit, as a key source of growth,» the report added. «Both of these asset classes have room to grow in the Asia-Pacific region. In our experience, diversification is challenging. Those who get it right build needed capabilities and invest close to their core business.»