Running Head: PRIVATE EQUITY IN SOUTHEAST ASIA
Private Equity in South East Asia:
Challenges and Opportunities
Daniels College of Business – University of Denver
PRIVATE EQUITY IN SOUTHEAST ASIA: CHALLENGES AND OPPORTUNITIES
Private Equity (“PE”) has played a big role in the investment world, not only because it generates relatively more return for the investors compared to other forms of investments, but also it has a huge market capitalization in terms of invested funds. As many investors and finance people know, the United States has been the biggest playing field for PE firms since 1980 as it is a developed market with mature structure and clear ...view middle of the document...
Hence, the purpose of this paper is to provide relevant information about PE market in the Southeast Asia as well as provide recommendations on how to deal with the challenges.
2.1. Market Typology
With the exception of Singapore, most companies in the Southeast Asia region are developing countries and are therefore referred to as an “emerging market”. Table 1 describes the market typology of PE market based on four market types.
Table 1 - Market Typology
| Mature Markets | Non-traditional markets in advance economies | Emerging markets | Frontier markets |
Economic structure | Sophisticated | Sophisticated | Relatively developed | Early stage of economic/financial development |
Economic stability | High | High | Track record is being establish | Track record still short |
Size of the economy and growth | Large/high level of prosperity | Varies | Varies with high growth prospect | Small size, lower level growth |
Debt markets | Highly liquid | Liquid | Emerging | Still embryonic |
Exit markets | Developed public equity markets with high market capitalization | Developed public equity markets with significant market capitalization | Relatively developed public equity markets with sufficient market capitalization | Underdeveloped |
Global PE firms | Investing | Investing | Investing | Very limited, if any investment |
Domestic PE industry | Developed | Emerging | Emerging | Rudimentary |
PE exits | Considerable history | Track record being established | Visible exits already occurred | Very limited |
Key markets | United States, EU-15, Switzerland | Australia, Canada, Hong Kong, Japan, Singapore | Brazil, China, India, Russia, South Korea, Slovenia, South Africa, Southeast Asia countries: Indonesia, Vietnam, Thailand, Malaysia, Philippines | Bulgaria, Colombia, Pakistan, Kazakhstan, Tunisia, Ukraine |
Source: Cornelius (2011).
The term emerging markets has been widely adopted by international investors to refer to all developing countries. Specifically, “Emerging PE markets” refers to those where an indigenous PE industry is already developing and visible exits have begun to attract a growing amount of interest among international investors.
2.2. Southeast Asian Private Equity market
In general, PE investment is growing in Asia entirely. According to Preqin, PE funds’ share of investments in Asia has grown from a mere 2.6% in 2006 to 10.6% in 2012, due to PE funds investing a total of US$27.8 billion in Asia (Figure 1). Although some of this increase in share can be attributed to the decline in PE investment in North America and Europe as a result of the financial crisis, the PE investment in Asia continued to grow at an average annual rate of 8% from 2006 through 2012. In fact, trends show that Asia was the only region in which PE investment grew over this timeframe.
Figure 1 - Global PE Investments by Region (Left) and Trend in Asia for PE Deals
Southeast Asia has continued...