When private equity fund managers descended on Singapore for two weeks of conferences culminating in the Formula 1 Grand Prix, many were expecting it to rain money.
The stage was set for pension funds, family offices and other institutional investors to deploy more of their record cash piles into the Asia-Pacific region — the world’s fastest-growing private equity market over the past decade — at some of the city’s first mask-free conferences since the pandemic.
Instead, general partners found themselves surrounded by rivals hunting for investors who kept a low profile at gatherings like SuperReturn Asia. The ratio felt like it was 10 fund managers to one investor at one event, several participants said, while a family office executive added they’d been on both sides of the money for more than a decade and never seen such aggressive efforts to raise cash.
Failing to attract fresh funds adds to challenges for the industry as slumping financial markets and valuations make it harder to exit investments. The crunch is most acute at smaller, newer firms trying to establish relationships with limited partners, while giants including KKR & Co. and Blackstone Inc. continue to lure money from long-standing investors even as China and other Asian economies slow.
“In terms of fundraising, we’ve definitely seen quite a dramatic decline for Asia-Pacific funds,” said Angela Lai, a senior research analyst at Preqin. “If you compare this year to last year, it’s quite marked — especially for China-focused funds.”
A glance at the historical numbers may suggest Asia is bucking a global private equity slowdown. Investors pumped US$8.6 billion into “re-ups,” which refers to allocating more money to existing relationships, this year through Oct. 7, according to Bloomberg data — up from US$2.9 billion a year earlier. Even new fund investments more than tripled to US$1.6 billion over the period.
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But much of the funding is going to the big-name managers that are considered safer prospects in times of financial stress. Baring Private Equity Asia last month completed a US$11.2 billion raising months after Chief Executive Officer Jean Eric Salata warned the industry faced a funding squeeze.
For the broader industry, momentum is weakening. Total assets under management for Asia-Pacific private equity firms jumped by 94% between 2017 and 2021 to reach US$554 billion, according to Preqin data. That’s now expected to grow by just 43% between 2021 and 2025 to hit US$793 billion.
“Middle-market managers tend to be the ones getting squeezed,” said Niklas Amundsson, partner at Monument Group Inc., a global private placement agent. “But even the major fund managers, which continue to do well, could see their funds in the next fund-raising cycle end up at much reduced targets.”
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In late September, thousands of investors and money managers arrived in Singapore to kick off meetings across the city. Hotels, ballrooms and drinking holes heaved as Asian portfolio companies, fund managers and analysts were finally able to meet in person after two years of border, mask and quarantine restrictions. Bloomberg reporters were invited to the events and put together this account based on interviews with more than eight attendees, who requested anonymity in order to speak freely.
Much of it started at the SuperReturn Asia summit at the Sands Expo & Convention Centre, billed as Asia’s best LP/GP networking event, and continued through the DealStreetAsia PE-VC Summit and Milken Institute Asia Summit. But for the institutional investors who came, it was like drinking from a fire hose. One family office representative, who asked not to be named, said they stopped displaying their badge for fear of being propositioned by fund managers passing in the corridors or waiting in the dining room.
A private equity manager due to present their ideas to LPs at a closed-door event said most attendees were competitors keen to borrow investment ideas — few investors had actually shown up.
Part of the problem is the denominator effect. The S&P 500 has fallen 23% this year, slashing stock values and making private equity overweight in many portfolios because such assets are slower to be repriced.
Another is that newer firms working on their first or even second fund haven’t built enough of a track record to entice wary investors bracing for a possible recession. It comes after more than two years where in-person due diligence wasn’t possible.
The bearishness isn’t universal — some allocators continue to place bets with emerging fund managers, reasoning that trying to time the market is a bad idea. Asia’s rising levels of affluence also make it an attractive long-term prospect that could bounce back faster than other regions — India and Southeast Asia in particular are potential hot spots.
But many institutional investors are being cautious for now or pushing more funds into cash amid fears of potential losses. Tsao Family Office CEO Bryan Goh, whose sponsor family is linked to sectors from shipping to hospitality, said insights from colleagues in those businesses have made him concerned. While he was still open to backing the occasional private equity fund manager, Goh said the pace of allocation had slowed down.
“We were running about 7% cash in December and now we’re running about 14% — we raised it fairly quickly,” he said in August. “The right number is 100%, if we had perfect foresight.”
