Asia-focused private equity funds are rapidly shedding status as part-players on the global stage, becoming an increasingly important part of the sector.

Asia-focused private equity returns made more money for investors than their American and European counterparts in recent years, and the region is becoming more important as a centre for such investment.

Funds that deploy money in the region accounted for $722 billion of assets under management - about a quarter of the global total, and corporate investors and banks are particularly significant backers, more so than is the case in other regions, a report by Preqin, the research firm, said.

“Although investors have yet to see the same returns of cash in Asia than they have for North America- and Europe-focused funds, Asia-focused private equity funds’ returns rival those of more established regions, pushing the region to see strong capital distributions in recent years,” Christopher Elvin, head of private equity, Preqin, said.

Private equity has traditionally been a North American and West European market, with renowned organisations such as KKR, Carlyle, Bain, and Blackstone, among others, making the news. With the economic centre of gravity seen shifting East, however, so has interest in the private equity field, particularly as yields have become compressed by the volume of money chasing investments. Industry figures have pegged the amount of unused capital, aka “dry powder”, at around $1 trillion globally. (A report earlier this year by Preqin suggested large inflows may be causing indigestion, making it harder for funds to deploy capital as effectively as they would like.) Examples of such funds are Hong Kong-based Affinity Asia Pacific Fund IV, US-based Carlyle Asia Partners IV, and US-based TPG Asia VI. In July this year, Blackstone said that it has raised about $9.4 billion in new Asia-focused funds, including its first private equity fund for the region.

The Preqin report said that growth funds account for 42 per cent of Asia-focused dry powder, while venture capital funds account for the second largest proportion (29 per cent). Although investors have yet to see the same capital distribution levels from Asia-focused funds as they have from more established regions, the levels of Asia-focused capital distributions are nonetheless growing, and have exceeded $60 billion every year since 2015.

Additionally, Asia-focused funds have posted higher returns than North America- and Europe-focused funds for recent vintage years, with Asia-focused funds returning over 17 per cent for 2015 vintage vehicles. (“Vintage” relates to the point at which investments were initiated.)

Despite a year-on-year decrease in the number of Asia-focused funds closed since 2015, aggregate capital raised has increased due to larger funds entering the market: in 2013, just 12 per cent of funds closed at $250 million or more; in 2018 this proportion has grown to 35 per cent.

The largest hub of Asia-based investors is in China, with the region accounting for almost a third (32 per cent) of investors in Asia. Meanwhile, Japan accounts for the second largest proportion (21 per cent) of Asia-based investors. 

Although the majority of investors in Europe and North America are foundations and pension funds, the largest proportion of investors in Asia are corporate investors and banks, which make up 27 per cent and 12 per cent of investors in the region respectively.