Private equity funds looking beyond their mandate, says survey
SINGAPORE (Oct 23): Private equity funds are now looking to expand beyond their geographical mandate, according to the Asia Private Equity Outlook 2019, by global law firm Dechert.
“Private equity funds that were geographically focused, are now seeing these country-focused funds looking beyond what their original mandate was. We’re seeing, for example, China funds looking at Vietnam, there’s definitely a geographical expansion,” says David Cho, partner, Dechert.
According to the survey conducted in conjunction with Mergermarket, 75% of respondents in Asia Pacific (APAC) says geographic expansion has become significantly more important to their firm over the last three years. Benefits from such a strategy include gaining exposure to faster-growing regions or economies (75%), opportunity to make profitable connections between portfolio companies (50%) according to respondents.
The main challenges for PE firms in APAC have been adapting behaviour and tactics to local business culture (63%) and properly adjusting valuations for local and regional risks (50%). PE firms in APAC (80%) says specialisation is also not as important or somewhat important compared to their North American (88%) and Europe and Middle East (90%) counterparts.
Despite the region not having delivered as well as other regions, sentiments for PE investments in Southeast Asia are up 20% y-o-y. This is mainly due to lack consistency across portfolios, according to Siew Kam Boon, partner, Dechert.
“You might have some good portfolios weighed down by others, some of the funds are also stuck with portfolios. Additionally Asean’s secondary market is trailing behind the rest of the world,” she says.
While Southeast Asia might be a hot location for PE firms, investors are not immuned to geopolitics as well. Dechert’s partners notes there was some excitement for PE investments in Malaysia, which has died down since the change of leadership in the May elections last year.
“We had a client ready to invest billions into Malaysia. After it had a regime change, it has now almost completely pivoted away from Malaysia. It is going to take a bit of time for the regime to settle down and for outside investors to come back and make investments,” says Spencer Park, counsel, Dechert.
