Asian private equity (PE) markets have gotten themselves a reputation for being difficult to both enter and to exit. Inevitably, this has led to a number of struggles for the PE marketplace across the continent. We recently looked at measures the South Korean government is looking to take in order to boost markets in the country.
When we talk about Asian PE investment, we’re talking more about the Far East. Israel, by contrast, is proving to be a very lucrative PE market, particularly when it comes to technology start-ups, owing to its proximity to Europe and close ties to the United States.
Although the red tape that surrounds PE deals and the entire process in many Far Eastern countries is holding the market down, the presence of many wealthy individuals in the region is also proving a hindrance. The Financial Times reported recently that individual tycoons – the story highlights Li Ka-shing from Hong Kong – are grabbing all the best and most lucrative investment opportunities, particularly at the early stages of a business’ life and so limiting PE funds’ reach.
Instances of wealthy individuals investing into companies is not new, but it is somewhat unique that in Asia this tends to be in the form of direct investment. Elsewhere around the world, the common trend is for individuals to invest in funds that then invest in the chosen company for them.
Eric Solberg, former partner at CVC and now owner of an Asian PE shop, told the newspaper that avoiding different fees and complicated deal structures with PE funds is probably what makes these tycoons go it alone. He said, “Far more active than private equity as a whole or corporates as a whole are the Asian families. It is very hard to track what they are doing in real time, but you should not forget that they are the ones really driving the [private investment] market here.”
Another prominent figure in the PE market, Brian Crawford, also told the Financial Times that the reputation of PE funds in the region for having a lack of transparency was also harmful, and that wealthy individuals and families are happy to calculate the risk involved themselves and make the appropriate moves to invest. It leaves the Asian PE markets in an interesting position.
Numerous pieces of analysis of economic trends have shown that a strong PE marketplace generally means a strong economy, and while Solberg states that wealthy individuals bypassing Asian PE houses is driving the industry, if such trends continue other countries will need to follow South Korea and look to make investment through funds more appealing.