U.S. Private Equity in Asia

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U.S. private equity funds boost Asian acquisitions outside China. Investment activity rises in Japan and India as investors hedge against risks.

Major U.S. private equity funds are diversifying their Asian acquisitions, increasing activity outside China as Beijing's pandemic countermeasures and worsening relations with the U.S. make investors wary about the country.

Flush with money; the funds could step up acquisitions of non-Chinese Asian companies this year and beyond.

The value of acquisitions targeting Asian companies in 2022 totaled $48.7 billion, down considerably from 2021 when the stock market was strong, according to S&P Global Market Intelligence.

Acquisitions of Chinese companies slid 76% from the previous year, part of a seismic shift as an investment in Japanese businesses reached $13.3 billion, nearly double that in China.

"The 2022 increase of U.S. private equity investments in Japan is linked to the ample dry powder, or uninvested capital on hand, of many funds launched within the past three years," S&P commented on the rise in acquisitions of Japanese companies.

Investor concern about the impact of tightening monetary policy on the U.S. economy also contributed to the increase.

KKR's total assets under management for Asia-focused corporate funds tripled from 2019 to $60 billion, Chief Financial Officer Robert Lewin said at the fourth-quarter 2022 earnings briefing.

The firm has said that investment in Asia would be one of the six key areas that are going to drive significant growth for KKR for several years to come. In addition to launching a fourth fund for the continent in 2021, the company also has established Asia-related funds specializing in infrastructure and real estate, indicating a large investment capacity.

KKR acquired logistics company Hitachi Transport System for $6 billion last year amid momentum among Japanese businesses to improve governance and profitability. The firm also is investing in South Korean companies that are working to improve their balance sheets, and Australian businesses, which are displaying a trend of public companies going private.

"Key investment themes [in the Asia-Pacific region] include opportunities stemming from rising consumer spending, given Asia's rising middle class; technology and digitalization; corporate carve-outs, spinoffs, and consolidation," a KKR spokesperson said.

The Carlyle Group is boosting investment in India, hiring Amit Jain, who previously ran the Indian private-equity business at Blackstone, in 2021. It has acquired 44 businesses with a total value of $5.5 billion since entering India in 2005, including VLCC, a beauty products and services company whose acquisition was announced last month.

Blackstone is expanding its real estate investments in Asia, creating a third property fund for the region last March. Investments in the fund reached $8.1 billion at the end of December, double what was raised by the first Asian real estate fund the company launched in 2013.

This greater diversity in investment around Asia results partly from the trend of institutional investors, such as pension funds, allocating money as limited partners.

One factor behind funds diversifying their Asian investments is the trend among institutional investors wanting more diversification in Asia-Pacific investments after the difficult market year of 2022, said Niklas Huether, assistant professor at the Kelley School of Business at Indiana University.

"[Asia-Pacific] private equity investments used to be China dominant," Huether said. "But the big change we see in 2023 is more diversification across other regions such as India, Japan, [South] Korea, and Australia."

China has eased its zero-COVID restrictions, and investment there is expected to gradually recover.

"The resurgence is expected to be powered mostly by domestic activity as foreign investors wait and see developments in U.S.-China trade relations and perhaps look more carefully at the sectors they target in China," S&P Global said.

By: Momoe Ban, Nikkei