UPDATE: Asia’s private equity market is gearing up for a significant revival, according to StepStone Group, as new strategies and economic shifts are set to drive growth following a slowdown that began in 2021. The latest analysis indicates that adjustments in valuations and ongoing corporate restructuring will boost buyout demand across the region.
The report, shared during a roundtable discussion on November 7, highlights that the reopening of IPO windows will create improved exit opportunities amid rising market liquidity. StepStone has invested approximately $14 billion in Asia’s private equity sector since 2019, reviewing over 4,000 investment opportunities annually.
“We anticipate a surge in carve-outs and take-private deals, particularly in sectors like technology, healthcare, and industrial upgrading,” stated Vincent Hsu, partner at StepStone. This strategic pivot focuses on sectors that are expected to yield high returns, reinforcing the strong fundamentals of the region.
The report emphasizes that Asia private equity funds have consistently outperformed the MSCI AC Asia Index by 4-8% in internal rate of returns across most vintages since 2010, proving to be more stable than public markets, even during economic downturns. The sustained performance premium reflects the structural advantages of private markets in Asia, which include access to early growth opportunities and enhanced operational value creation.
However, the report also warns that the depreciation of many Asian currencies may elevate foreign exchange risks, necessitating investors to adopt selective hedging strategies.
Particularly in South Korea, attractive carve-out opportunities from family-run conglomerates, known as chaebols, are emerging. Hsu noted, “The typical playbook for private equity in Korea has revolved around chaebol carve-outs. There’s optimism that reforms can mirror Japan’s successful value-up programs.”
In Japan, take-private opportunities are increasing as small and medium-sized enterprises—representing about 70% of total employment—trade at favorable valuations. Strengthened corporate governance standards and growing activist shareholder engagement are also contributing to this momentum.
Meanwhile, in India, favorable demographics are driving private equity exit values, with approximately 40% of the population aged between 20 and 40. Hsu remarked, “In India, there’s a wealth of exit opportunities. Japan is a bright spot for Asian private equity, benefitting from corporate governance improvements and increased shareholder activism.”
China is witnessing a rebound in IPO activities, nearing pre-2021 levels, although regulatory uncertainties continue to present challenges. In Australia, strong buyout prospects are developing in the lower- to mid-market segments, particularly in healthcare, technology, and business-to-business services.
As Asia is projected to contribute about 60% of global inflation-adjusted GDP growth between 2022 and 2027, with China alone accounting for roughly 28%, the implications for private equity investment are profound.
Investors are urged to monitor these developments closely, as the region’s economic recovery and structural advantages signal a potential windfall for strategic allocations in private equity. With the landscape shifting rapidly, the focus on Asia as a long-term return driver is becoming increasingly clear.
Stay tuned for more updates as this developing story unfolds.
