Time for big hitters to put their capital out to play

By Paul Mackintosh - 13/01/14

As headlines in the Financial Times and elsewhere have indicated, news of the IPO floodgates opening in China as PRC regulators begin to approve listings again has not exactly set the world of Asian private equity on fire. General partners (GPs) across the region seem to be taking a long hard look at the market realities before jumping to conclusions about early exit opportunities. It's not simply that in China private equity-backed companies have to join the queue behind many others. Or that Asia has languished behind Western markets that have seen the likes of the US$1.8 billion Twitter IPO or the $2.5 billion Blackstone-backed Hilton Hotels listings. It's also a matter of whether this is the right time to go to market in what is after all supposed to be a long-term asset class. The MSCI Emerging Markets Index, for instance, kicked off 2014 with its worst fall since August last year – hardly a great starting gun for an IPO rush.

This all raises the question of where Asian private equity ought to be in the fundraising / investment / exit cycle. And as it happens, the answer ought to be quite obvious. With Kohlberg Kravis Roberts having recently closed its $6 billion Asia Fund II, Asia-only peer Affinity Equity Partners hitting the $3.5 billion hard cap on its fourth fund, and many of the other major buyout players such as Apollo Capital Management now sitting on very large magazines of dry powder, the time seems ripe to deploy that capital into new investments. And the same poor economic data out of China that caused that MSCI Index drop might also indicate some attractive investment targets for GPs. After all, investing at the peak of the growth curve is hardly the way to make good private equity returns. And China's project of a long and tricky transformation into a domestic consumption-driven economy also promises plenty of openings at present and in the future.

And all that private equity money raised for Asia also opens another compelling exit prospect, in a region where secondary buyout deals were perhaps always more common than they appeared to be. If promoter and entrepreneur valuation expectations are going to be jacked up by rising public market comparables, which often happens in markets like China and India, then eager private equity sellers could paradoxically provide some of the best value at entry for newly raised funds looking to put their capital to work.