Bain: Asia private equity market plunged 26% in 2023

    Mainland China’s private equity market faced an especially tough year in 2023, with deal value plummeting by 58% compared to the previous five-year average.
    A cloudy picture for Asia's private equity firms? Image: Getty
      Published   in Finance

    Bain and Company’s Asia-Pacific Private Equity Report 2024 reveals a private equity (PE) market in Asia-Pacific marred by economic headwinds, leading to a sharp decline in deal activities and exits, with Greater China significantly impacted.

    Amid this tumultuous investment environment, the region’s PE funds raised just $100 billion in 2023, down 26% versus 2022 and 60% below the five-year average.

    This contraction was coupled with a drop in deal value to $147 billion, 35% lower than the five-year average and 59% below 2021’s high of $359 billion.

    The decline reflects investor apprehension amid slowing economic growth, high interest rates, and geopolitical tensions.

    Image: Bain & Company
    Image: Bain & Company

    Struggle and resilience#

    Mainland China faced an especially tough market in 2023, with deal value plummeting 58% compared to the five-year average. China’s share of Asia-Pacific’s deal value dropped to 28% from the 43% observed in earlier years. Despite this, Greater China emerged as a pivotal player in exit activities, particularly through IPOs in technology sectors, indicating a nuanced picture of challenges and opportunities.

    Hong Kong’s PE market echoed broader regional trends, with cautious investor sentiment leading to a slowdown in deal-making activities. However, its strategic position as a financial nexus and a gateway for Chinese companies to global capital markets remains undisputed, underpinning its role despite prevailing market uncertainties.

    In stark contrast, Japan demonstrated resilience and growth. It saw a 183% surge in deal value compared to the five-year average, buoyed by its stable regulatory environment, low interest rate, and a wealth of target companies. Southeast Asia, despite a decline in deal activity, continues to offer growth opportunities, especially in the digital economy, suggesting potential areas for recovery and investment.

    Image: Bain & Company
    Image: Bain & Company

    Signs of recovery#

    The report underscores a strategic shift among General Partners (GP) to focus on new strategies to enhance exit value and explore infrastructure and private credit.

    With the backdrop of six consecutive years of low or negative net cash flow, Limited Partners (LPs) have become increasingly selective, funneling investments towards funds with proven success and distinct strategies. This cautious approach has led to a decline in Asia-Pacific’s share of global PE assets under management (AUM) to 27%, down from 28% in 2022 and 29% in 2021.

    Signs of market improvement have begun to emerge, with inflation falling, anticipated declines in interest rates, and stock markets climbing in most areas, excluding China and Southeast Asia. Furthermore, the report notes that a majority of GPs are employing generative AI to reduce risks, optimize operations, and boost the performance of their portfolio companies.

    The Asia-Pacific Private Equity Report 2024 describes a year marked by significant challenges, yet punctuated by strategic adaptations and emerging opportunities. As the region grapples with economic uncertainties, the resilience demonstrated by markets like Japan and the pivot towards alternative asset segments and innovative technologies highlight a path forward.

    • Bain and Company’s Asia-Pacific Private Equity Report 2024 shows 2023 was a challenging year for the region’s private equity sector, with a significant downturn in fundraising and deal activities, particularly in mainland China and Hong Kong.
    • Deal value in mainland China decreased 58% from the five-year average, underscoring the impact of economic headwinds on the country’s PE market.
    • Japan and Southeast Asia showed resilience, contrasting with the broader regional downturn, especially in sectors like the digital economy and infrastructure.
    • Investors are turning to infrastructure and private credit to navigate market uncertainties and position for growth.
    • Signs of market improvement, including falling inflation rates and the potential transformative impact of disruptive innovations like generative AI, suggest a gradual recovery.
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