Challenging Environment for PE in Asia
In 2023, Southeast Asia (SEA) saw a total of 22 deals deploying about US$3.9 billion. Private Equity (PE) activity in SEA showed good momentum in the second half of the year of 2023, compared with the first half. Comparing to the previous years, 2023 was a slower year for fundraising as well as exits and they are linked as a slower return of capital to limited partners (LPs) resulted in a lower level of commitment to new fund raised.
While macroeconomic headwinds still persist, experts are positive that the momentum look to continue into 2024 and a higher exit activity in 2024 is expected with secondaries exit anticipated to be a popular exit choice. Asia’s challenging environment for PE exits is set to fuel demand for the private equity secondaries markets.
Source: EY Quarterly Private Equity Update Asean 2023
Family Offices Eyeing on Secondary Markets
In 2024, SEA’s PE landscape is witnessing a significant surge in interest towards secondary markets, driven largely by the strategic moves of family offices. Facing challenges in traditional exits such as lower IPOs and cautious financial sponsors, investors are increasingly exploring alternative liquidity options, with PE secondaries emerging as a compelling choice.
Family offices with a VC mindset are spearheading this trend, actively seeking out early-stage opportunities in the SEA region. This shift reflects a broader recognition of SEA’s potential for growth and innovation, prompting investors to rethink traditional exit strategies and embrace the flexibility and potential returns offered by secondaries.
Globally, a rise in sell orders, particularly from VC firms and early investors, underscores the growing importance of secondary trades as a means of portfolio optimization. While some family offices opt for diversified secondary funds, others are strategically targeting direct investments in high-growth firms, signaling a nuanced approach to navigating the evolving investment landscape. As SEA’s PE secondaries market continues to mature, it presents both investors and PE firms with new avenues for value creation and portfolio diversification in the years ahead.
Many countries in SEA are experiencing rapid economic growth, driven by factors such as a young population, rising middle class, urbanisation, and increasing consumer spending. Based on this background, the private market in SEA, particularly in secondaries, can offer unique entry points for investors looking to capitalise on deep discounts to find entry into quality investments as the market consolidates. It is believed that SEA’s secondary investments in a portfolio can help to optimize risk-return profiles.
All in all, investing in secondaries in SEA private markets is still relatively new when compared with more matured market like the United States. There is concern that there has been lack of transparency of information. It can be foreseen that investors who want to buy and sell secondaries often struggle to get the right information and find good deals.
Unlocking Opportunity of SEA’s Growing Secondary Markets
SEA stands as a beacon of rapid economic growth, fuelled by dynamic factors like youthful demographics, expanding middle-class segments, urbanization, and heightened consumer spending. Against this backdrop, the region’s private market, particularly its burgeoning secondary sector, presents a golden opportunity for investors seeking entry points into quality investments at discounted rates amidst market consolidation.
SEA’s secondary investments hold the promise of optimizing risk-return profiles within portfolios, offering a strategic hedge in an evolving market landscape. While still in its nascent stages compared to more established markets like the United States, the potential for lucrative returns in SEA’s private markets is undeniable. However, concerns persist regarding the lack of transparency, hindering investors’ ability to access vital information and secure favourable deals in the secondary space.
Looking ahead, bridging the information gap and enhancing transparency will be critical in unleashing the full potential of SEA’s secondary markets. As investors navigate this dynamic landscape, seizing the opportunity to capitalize on deep discounts and quality investments, collaboration and innovation will be key drivers in shaping the future trajectory of private market investments in Southeast Asia.