• Published on 14 February 2018
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McKinsey analysis confirms record-breaking year for private equity with the return of the megafund, but growing pains continue as sector looks to innovate

According to new research from McKinsey, the Asian private equity landscape is set to undergo a transformation driven by the rise of US-style mega funds; with comprehensive data from 2017.

This reflects a changing landscape for private equity investing in India. Previously, private equity investing in Asia has been primarily a growth fund market where firms take only a minority stake in businesses. However, the lack of control this entails has become more problematic lately as firms are unable to effect the changes necessary to improve performance and value. This is particularly the case in China, India and South East Asia.

Key highlights from the report:

• US$78 billion raised in Asia in overall private markets activity during 2017
• Globally, 2017 was a record-breaking fundraising year with US$750 billion raised, up 3.9%
• Global rise driven by mega funds, which also emerge for the first time as a significant feature in Asia and indicate a new approach to private equity investing in the region
• McKinsey’s report, called ‘The rise and rise of private markets’, is the first publication of the year to comprehensively analyze 2017 performance with the full year’s data

As a result, 2017 witnessed more capital raised by funds under a buyout thesis than ever before, with mega funds – previously close to non-existent in this region – contributing more than $20 billion of the $60 billion private equity fund raised in Asia over 2017. Asian mega funds also made a large contribution to the global total of US$174 billion.

For many funds, the experience of being in overall control of an investee company will be new and bring with it the need for new operating models. Similarly, the investee company will need to adapt to this new form of ownership.

Also reflecting this shift is the rise in deal value, where Asia led the charge with a 96% jump to $110 billion. Deal count fell in the region, as in the rest of the world. Both trends reflect greater discretion in investor activities, with more capital being deployed in fewer companies and more buy-out deals taking place.

Vivek Pandit, Senior Partner and Co-Lead, Private Equity & Principal Investor Practice, McKinsey, said, “Private equity investors in Asia are moving from the passenger’s seat to the driver’s seat. Their role is transforming from one centred around strategic guidance and governance to strategy formulation and management control. While being in greater control of talent and operating decisions, they are quickly learning these aren’t autonomous cars built for speed and retooling is required.”

Re-disseminated by The Asian Banker