And yet – around a year on from the collapse of Lehman Brothers – are Asian prospects not, after all, materially different? This is an important question given the implication for LPs' portfolio construction plans. From discussions and emerging news reports, here's a brief summary of the outlook in four of the region's leading economies:
For the growth and venture capital investors that make up the bulk of the private equity market in China, this is good news. Some caution is advised, however. Sceptics point to “overwhelming state intervention” and certain aspects of a fiscal stimulus that may not prove sustainable (such as reportedly undue pressure on banks to make loans – which may therefore be sub-standard and store up problems for the future).
“Next year you could see an unsustainable expansion phase followed by a sharp correction halfway through the year, which would catch people by surprise,” suggests Chris Meads, a partner at funds of funds manager Pantheon Ventures in Hong Kong. “Nonetheless, the opportunity in China remains compelling,” he adds.
A simmering problem for Indian GPs is the fundraising environment. The effects of a generally arid fundraising climate globally have been exacerbated in India where a large number of funds have sought to raise money – many of them first-time funds, which are expected to have bleak prospects. Furthermore, many Indian funds have traditionally received a large portion of their capital from US endowments and foundations, which are now facing severe liquidity issues.
The Australian private equity market did see a notable acceleration of leveraged buyout deals during the peak of the market, although Australian banks appear to have been somewhat more prudent in their lending than counterparts in the US and UK. Furthermore, international players were responsible for many of the larger LBOs. Domestic players may now be grateful that they were often outbid and forced to sit on the sidelines.
Private equity in Japan is witnessing a familiar cycle – not for the first time, international GPs have scaled down or pulled out of Tokyo in response to worsening market conditions. Although the rationale still holds that hard-pressed companies will ultimately need to consider selling non-core divisions, many GPs have lost patience with Japan. Furthermore, many deals struck in the country in recent times have been in the consumer and finance sectors – and these have been hard hit.