Private equity (PE) trends across the Asian continent have enjoyed many column inches in recent months. Recent happenings across the region have seen many Asian PE houses turn their attention towards Europe, while there have even been concerns that the PE marketplace in Asia was starting to be seen as an untouchable one in terms of investing into it.
While there are still plenty of lucrative opportunities across Asia, the widespread presence of red tape creating problems not just with investing but with exiting, even in countries like China and South Korea where some of the biggest opportunities lie, is turning many people away.
Many wealthy Asian individuals have been shunning PE to invest themselves. One of the latest trends to have grown from these occurrences, as reported recently by CNBC, is that the wealthy Asian individuals who do want to invest in PE are now doing so in partnership with the funds based in the region.
Why is this a favourable option?
Firstly, it is an alternative to investing in the funds themselves, which not only incurs fees but also removes much of the control investors have over where their money goes. These wealthy investors know the business world so want to be in charge! By the same token, PE firms know what they’re doing. However, the prevailing trend of investors wanting to go it alone, but at the same time not wanting to take on 100% of the risk, means that partnerships are proving a popular way to work together.
Investors avoid the fees attached with investing directly into a PE fund, while the funds that were previously struggling to attract investment and raise funding rounds pull in the extra capital they need in order to be strong, whether this investment be aimed at Asia or elsewhere.
This approach to “co-investment” also enables the wealthy individual to have a say on the direction of the company, particularly as the PE marketplace in general is moving in the direction of buyouts so that a fund can control the business, rather than seeing a minority equity stake acquired and allowing the business to get on with it. Individual investors and PE funds in Asia can therefore be happier that the results they see from their investments are because of their input. Waiting to see what the business leadership delivers is increasingly becoming a less attractive and acceptable option.