2021 is a new year with new hopes. 2020 was a year of challenges and uncertainty.
The private equity industry was no exception to the coronavirus pandemic. Market volatility and business uncertainty challenged even the most robust and experience firms who’ve had to contain raising capital, guide portfolio companies through the pandemic while creating enough value to deliver a consistent return to investors. However, the industry as a whole was able to embrace and adjust their new reality. Course correcting operating models, improving advisory capabilities, and relying on industry experts to adapt businesses under their care to be more agile and resilient. This robust recovery was seen by several notable trends last year such as the increasing amount of capital raising. Asia’s dry powder grew at 22% from 2019 to 2020 and this trend is expected to continue.
Despite this, the challenges brought forth via Covid still remain. Many parts of the deal process have been put on hold or are moving at a much slower pace. Travel restrictions have limited firms from conducting due diligence and meeting management teams in person resulting in delayed or elongated timeframes for acquisitions and transactions. As frameworks for virtual due diligence are becoming commonplace and vaccine distributions set to ease travel restrictions, 2021 will increasingly become a year of new opportunities and challenges for private equity in Asia.
This webinar is part of a series of Convergences Webinars that ECKL is embarking on that will see the convergence of opinions and views from key individuals within the industry with ECKL as the Convenor of these ideas and individuals. This session will feature speakers sharing their insights and thoughts on the key trends emerging for private equity in Asia in 2021. With some guiding themes highlighted below for discussion.
- Diversification of expertise into alternative asset classes
The pandemic brought to light several alternative asset classes that are set to be key focus areas for private equity firms this year. These are:
- 1. ESG Investments – over $3 trillion has been raised for 5400 funds that are managed by firms that subscribe to ESG principals. The pandemic only accelerated the need for investors to see long term sustainability in businesses and are now looking to incorporate ESG variables into their due diligence processes.
- 2. Technology – while this is nothing new, 2020 was a catalyst pushed consumer behaviours at an unprecedented scale forcing businesses to digitize processes and activities in order to survive. With 30% of deals made in this sector alone, this trend is here to stay.
- 3. Infrastructure & Real Estate – due to the economic impact of 2020, there will likely be an inflow of distressed assets on the market. Governments will also be looking for large scale capital investments for population stimulus. Large scale capital investments and infrastructure provides high spending and will likely be an attractive option which is why AUM in private infrastructure vehicles are predicted to increase 25% globally by 2025.
- Projections that 2021 will be an active year for deal activity
With delayed pipelines in 2020, exits decreased in 2020 to only $ 29.5 Billion USD. However, dry powder reached a record high of $476 billion as of November 2020, Asia is also expected to outgrow the US and EMEA as institutional investors continue increasing allocations towards Asia. Furthermore, deal boon has been at an all-time high since 2007 with SPAC’s on an upward trajectory raising up to $79 Billion USD in 2020. With the easing of travel restrictions, commonplace virtual due diligence, an inventory of delayed exits added to the 2021 pipeline and coupled with steady valuations bolstering confidence. 2021 looks set to be a year where pent up activity will create an active year for deal activity in the industry.
- How Shifting Tax and Regulatory Landscape will affect the industry
Due to increasing scrutiny in investment holding companies by regulators and authorities, there is a growing trend of onshoring funds and investment platforms in Asia. Both Singapore and Hong Kong have introduced on-shore fund structures (Variable Capital Companies Regime for Singapore and Limited Partnership Fund Regime for Hong Kong) that are growing with popularity in the market. Furthermore, the OECD/G20 recently released its blueprint for BEP2.0 (Base erosion and profit sharing) in late 2020 in an effort to resolve tax challenges that are arising from digital economies. While the new framework is complicated and funds might be excluded from some of the proposed rules, BEPS 2.0 might still have an impact on portfolio investments and expected returns. Hence, how will shifting tax and regulatory changes such as these affect the industry?
- Online Panel Discussion, live streamed on ECKL Social Media accounts
- Conversation style to be casual but centered around an economic theme
- Flexible timing arrangement; depending on discussants availability on either of the dates proposed.
- Transcripts and summary of the discussions to be posted on social media as key takeaways
- Ideas generated recorded to be discussed in tandem with ECKL Conversation series
- Business and Corporate Leaders
- Academic Institutions and Think Tanks
- Economists and Policy Makers
- Young Professionals (particularly those interested in this sector)