GIA Industry White Paper 1_ 2010_Asia Private Equi

AllRightsReserved©2010’OutlookIndustryOutlookfor2010andbeyondJanuary2010GlobalIntelligenceAlliance©2010.Allrightsreserved.Contact:NicolasPechet,VicePresident,China,andHeadofPrivateEquitypractice,[e-mail],SeniorConsultant,[e-mail]:(852)21074299Singapore(65)64231681NewYork(1)2129462628London(44)2072038382GIAIndustryWhitePaper1/2010:AsiaPrivateEquityLeaders‟Outlook‟sPrivateEquityindustry,includingseniorexecutivesfromApaxPartners,BaringPrivateEquityAsia,CLSA,GECapital,MorganStanley,aswellasongoingmarketmonitoringandanalysisofPEindustrytrendssince2008.Thereportisprovidedasis,freeofchargeandwithoutanywarrantyorguarantee.GlobalIntelligenceAllianceacceptsnoresponsibilityforerrorsoromissions,orforanylossorconsequentiallossarisingasaresultofdecisionstakenbasedonitscontents.©2010GlobalIntelligenceAlliance.Allrightsreserved.Thisreportiscopyrighted,howeverindividualpagesorportionsthereofmaybecopiedreferencing“GlobalIntelligenceAlliance”asthesource.2GIAIndustryWhitePaper1/2010:AsiaPrivateEquityLeaders‟Outlook:AsiaPrivateEquityLeaders‟Outlook‟stopmarkets(i.e.ChinaandIndia).Howevertheiroutlookongrowthlevelsinthecomingyearsvariessubstantiallyinlightofeconomicuncertainty.Theirexpectationscanbecapturedalongthreekeyscenarios-stronggrowth,moderategrowth,moderategrowthandsaturation.“ThePrivateEquityindustryinAsiawillundoubtedlycontinuetogrow.ThefundamentalsoftheregionarerightandthispresentsgreatopportunitiesforPrivateEquityinvestors.”--ManagingDirector,GEEquitySource:GlobalIntelligenceAlliance,Research&Analysis,CenterforAsiaPrivateEquityResearch110,590134,981166,139207,381254,037262,317200420052006200720081H„09Asianprivateequityaggregatefundpool(2004-1H2009,millionsofUSD)201220152009Scenario2:ModerategrowthScenario3:ModerategrowthandsaturationOutlookforinvestmentactivitiesinAsiaScenario1:StronggrowthGIAIndustryWhitePaper1/2010:AsiaPrivateEquityLeaders‟Outlook•AsiacontinuestoattractcapitalforPEfunds,however,theinflowofPEcapitalgraduallyoutpaceseconomicgrowthandproductiveuseforsuchcapital,causingcompetitionamongstprivateequityfirmstointensifyfurther.PEinvestmentreturnsdropasthemarketmatures.•Somecapitalisultimatelyredirectedtomoreattractiveassetclassesinwhichriskadjustedreturnsarehigher.“LackofexperiencedandseasonedprofessionalsandteamwhocanmanagecapitalandriskeffectivelythroughthevariouseconomiccyclescouldbeakeybarrierforgrowthofprivateequityindustryinAsia.”--ManagingDirector,BaringPrivateEquityPartners•AsiacontinuestorecoverfromtheeconomicdownturnrelativelyfasterthantheUSandEurope.CompaniesinAsiacontinuetorequirecapitaltosupportexpansion.RelativelylowvaluationscausedbydownturnattractPEfundstoclosemoredealsinnearterm.•Economicgrowthof7%to10%inIndiaandChinaremainsontrackincomingyears,whiledemandforcapitalinthesecountriesremainshighinordertomeetrequirementsforgrowth.•StrongeconomicgrowthabsorbsPEinvestmentandsustainsfurthergrowthofPEindustry.•Highnetworthindividuals,sovereignfundsandinstitutionalassetmanagerscontinuetoshowstronginterestinexposuretoPEinAsia,makingprospectsforraisingPEcapitalinAsiaverybright.Scenario1:Stronggrowth•Overinvestmentinmanycoresectorssuchaschemicalandmanufacturing,andexcessivecompetitionamongstPEinvestorsinthefewremainingattractivesectorsleadtoweakPEinvestmentreturns.•InsufficientfundmanagerswithskillstonavigatePEfundsthroughchallengingcyclesfurtherlimitsgrowth.OnlythebestPEfirmswithtoptalentcontinuetothriveandattractcapital.•AsubstantialreductionincapitalallocatedtoPEfundsoccurs,eventuallybringingtheindustrybacktoamoresustainableandbalancedsize.Scenario3:ModerategrowthandsaturationOutlookforPrivateEquityinAsia