Opinion | Can Asean compete with China and India for private capital?

If a California venture capitalist were to take a New Yorker’s view of Asia, it might look something like this – Japan in the foreground, China looming at the top, India rising in the far distance and then the “flyover” states of Asean dotting the middle ground.

While flows of private investment capital certainly follow this pattern, there are real differences between the buyout and venture capital approaches to Asia and between the three big economic blocks within.

At a regional level, buyout and growth equity – majority and minority equity investments in mature companies – combined appear to be slowing. The number of deals in the four years to 2016 has dropped by close to 30 per cent, although deal value dropped by only 11 per cent. The biggest change has been a sharp decline in deals in India, which masks an increase in the number of Asean deals.

Also, across the region, the opportunities for deploying private capital are increasingly tilting in favour of venture capital. The causes for this are varied, but common reasons include the relative youth of public companies and the resulting lack of restructuring opportunities; and the continuing preference among family businesses to keep it in the family and resist external capital on terms commonly needed to entice private equity.

The number of buyout and growth deals in Asia is the lowest among the three major regions relative to venture capital. Of all private deals done in Asia in 2016, 90 per cent were venture, compared with 70 per cent in North America, the region with the next highest venture capital proportion. In dollar value, venture capital in Asia was at 39 per cent and in North America 28 per cent of total private capital deployed. So in Asia, private capital, for now, is really more venture capital.

And the number of such deals in the region was up 3 times in the five years to 2016 and the value of these deals was up 4.8 times.