The greatest opportunities for Asia-Pacific focused secondaries buyers are in China and India, according to a recent report published by Houlihan Lokey and Mergermarket.
China has been front of mind for secondaries buyers because of changes to the country’s macroeconomy. China’s A-share initial public offering market closed in 2012, which left fund managers with one fewer exit option. While the capital market has reopened, economic growth was stunted during the period and many fund managers generated lower returns.
In India, primary private equity fundraising has reached record highs and overcrowding is the current trend. Similar to China, IPO opportunities are scarce so limited partners are generating secondaries deal flow.
The secondaries market has nonetheless been slower to develop across all of Asia-Pacific, partly due to the youth of the primary private equity market. There is also a focus on minority or non-control investments in the region which has hindered secondaries market development.
It is understood Asia-Pacific private equity funds from 2006 to 2009-vintages focused heavily on non-control growth investments. The market struggles to find buyers willing to assume non-control interests because they carry additional layers of risk and they cannot control future exit routes. Meanwhile secondaries buyers are becoming more comfortable with minority positions in fund format. Confidence is still a key driver in a buyer’s investment decision, but buyers are more open to these secondaries deals in minority stakes.
Asia-Pacific secondaries buyers are also increasing. According to PEI’s Research and Analytics division dedicated secondaries funds raised $600 million in the region last year. Three funds closed last year, compared to none in 2013.
Buyers like Auda International are confident in the region. Despite slow macroeconomic patterns, the firm said direct secondaries opportunities are thriving, which is attracting investors. The firm hired two new investment professionals late last year and opened its Shanghai office last May.