Asia Pacific (APAC) private equity is likely to emerge as an outlier over the next five years as returns globally are forecast to cool down, according to Preqin’s Private Equity 2025 report.
The private market data firm projected that returns will ease across most private equity strategies and regions, except for APAC, during the six-year period from end-2023 to 2029, compared to the previous six years.
Net IRRs of Asia-based general partners (GPs) have remained lower than North American and European peers since the 2006 vintage and dipped to about 5% for the 2021 vintage, per Preqin’s latest data.
While it will remain lower than Western private equity, performance in APAC is expected to demonstrate “a significant recovery”, boosted by growth and fund-of-funds strategies which are currently experiencing a downturn, Preqin said. India and Japan are seen as the higher-performing markets in the region, which will offset the sluggishness in China, it added.
In terms of fundraising, APAC funds raised $59 billion in the first nine months of 2024, touching the lows of 2004 when $70 billion was raised in the full year. It also represented the smallest proportion (9.1%) of global fundraising since 2001.
“This risk aversion is to the detriment of new managers. LPs with well-established private market investment programmes are much more likely to recycle distributions into the new vintages from existing GP relationships, rather than exploring new ones,” Preqin said.
In an earlier version of the report, the firm stated that Asia accounted for the bulk of first-time managers globally, but their fundraising had waned over the past five years and trailed other geographies in 2023.
In 2017, driven by China, fundraising activity by these managers peaked, representing 56% of the global total. In contrast, Asia-based first-time funds recently raised the lowest capital in the past two decades. The $38.8 billion they raised in the first nine months of 2023 was only 5% of the total capital raised by global emerging funds.
That said, APAC managers “continue to fiercely compete” for LP cheques as the number of active GPs in the region is catching up with that in North America, to become the world’s second-largest source of fund managers, according to Preqin.
The firm’s analysts believe that fundraising in the region has bottomed out, but are cautious at the same time that investor sentiment towards China will continue to weigh on overall fundraising.
While Japan continues to be picked as an attractive developed Asian market for private equity sponsors, India and Southeast Asia are the most appealing emerging markets globally, and the bet on China is seen to improve.
If things go as predicted, APAC fundraising will grow at an average of 6.3% compound annual growth rate (CAGR) from now until 2029, compared to the -0.4% average between 2017 and 2023.
On a global basis, private equity asset under management (AUM) is poised to more than double to $11.97 trillion by 2029 from $5.8 trillion at the end of 2023, or a 12.8% CAGR. APAC will take up a 10% share of that anticipated AUM, while North America is expected to remain the dominant market with a 68% share.
