Asia PE funds decouple from Western markets

Rising buyouts between China and Japan, abundant leveraged debt in the region and the depth of China’s markets mean Asia-Pacific private equity will continue to outperform the Western model, leading Asia fund managers said on Tuesday.

China, the world’s second-largest economy, Indonesia and India were expected to lead returns in the next three years for private equity investors in the region, buoyed by booming consumer demand, according to a survey of fund managers at the SuperReturn forum in Hong Kong.

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China has been delivering returns for private equity of 25 percent to 30 percent the past years and should experience similar growth in the next two to three years, said John Zhao, chief executive of China’s Hony Capital.

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“Asia is clearly decoupling from Western markets, even in the private equity sector, and I for one am very optimistic about the returns you’re going to get out of Asia,” said Michael Kim, partner at Seoul-based MBK Partners.

The greatest threat to private equity investing in the region came from the wall of capital entering Asia looking for opportunities, which could pressure returns in coming years, the survey showed.

Still, despite the abundance of capital available for investments in China and a slowdown in economic growth in cities such as Beijing and Shanghai, investment opportunities remained abundant in the country’s booming hinterlands, Zhao added.

“What we’re very comfortable with is that we don’t do bad deals. The only question is how good the deal is,” said Zhao. “China is restructuring, so if this sector is not working, another sector will pop up.”

Reuters