Asian private equity (PE) funds continue to grow in size, despite global economic uncertainty. But recently, their focus has shifted away from China and instead, towards opportunities in Southeast Asia, across the full spectrum of strategies.
This is an observation shared by Hong Kong-based PE specialist Daniel Dusek, who joined US-headquartered law firm, Goodwin Procter, as a partner in June this year. Dusek moved from rival, Kirkland & Ellis, where he had led the PE practice since 2017. Prior to this, he served as a corporate partner at Skadden, Arps, Slate, Meagher & Flom, for almost 17 years.
Goodwin’s commitment to addressing emerging opportunities in Southeast Asia, as demonstrated by the firm’s establishment of a Singapore office earlier this month, was a key motivation for Dusek’s jump.
“The [opening of the] Singapore office is one of the key manifestations of the rationale for my move,” he told FinanceAsia.
The new base marks Goodwin’s second location in Asia following its presence in Hong Kong. The move to position the firm in Southeast Asia received “incredible,” support from the firm’s senior management, Dusek added.
The firm is bullish on activity in the region, and its new location will allow it to target opportunities to advise the multitude of PE players that have set up deal teams in the city-state, including KKR, Baring Private Equity Asia (BPEA), Warburg and TPG.
Dusek noted that his five most recent projects have involved advising clients on investments across the Philippines, Vietnam, Indonesia and Singapore. Meanwhile, he sees China as “effectively done for the time being, from a deal flow perspective,” as geopolitical tensions and the market’s prolonged Covid-zero policies continue to turn away investor interest.
“People are certainly reducing their exposure to China,” he said, citing Carlyle’s latest investment vehicle as an example. One of the biggest foreign investors active in the mainland market, Carlyle recently raised a $8.5 billion buyout fund, but cut its target exposure to Greater China by half that of its earlier Asia strategies, Dusek explained.
Besides Southeast Asia, India is also set to benefit from the shift, Dusek posited.
Goodwin is looking to address opportunities in the region across a range of PE strategies, including growth, leveraged buyouts (LBOs) and special situations. In addition to the three senior partners already based in Singapore, the firm has plans to relocate approximately 10 lawyers from Hong Kong, and is actively recruiting senior, “market-moving” talent, Dusek said.
Careful deployment, specialised fundraising
As well as reduced exposure to China, Dusek sees the next few months as characterised by continued caution in terms of deployment and more opportunistic investments.
"People are very cautious about deploying capital and part of it is [due to] the economic and geopolitical environment.”
This context may offer regional players such as Hong Kong-headquartered PAG and BPEA, and Seoul-based MBK Partners, a competitive advantage over their global peers, Dusek implied.
“Global GPs are far more constrained by their global IC (investment committee) processes…they’re far more risk adverse, so it always takes longer time for them to actually come and pull the trigger.”
He also observes PE players increasingly favour growth over control or buyout deals, as well as special situation and opportunistic activity.
Perhaps surprisingly, global macroeconomic conditions do not appear to have hindered fundraising activity – at least not for those players with strong of performance and exit track records.
“There's so much capital still sitting on sidelines,” he explained.
BPEA last month raised what the firm claimed to be one of the largest funds by an Asia-based PE firm. Initially targetting $8.5 billion, the fund closed at its hard cap of $11.2 billion. Its successful fundraise meant that it surpassed the $11 billion raised by Blackstone in January, and made it one of just a handful of PE funds raising capital within closest range to KKR’s $15 billion Asian Fund IV, which closed in 2021.
According to data provider, Preqin, Asia-focussed private equity funds raised a combined total of $226 billion last year and close to $100 billion, in the first nine months of this year.
Sharing perspective on BPEA’s merger with Sweden’s EQT Group, which finalised this week, Dusek said, “It's a relatively safe way to enter Asia without developing your own platform.” Meanwhile, he suggested that the deal made “financial sense” for BPEA’s founders.
While Dusek sees the possibility of further consolidation between large PE players, he is aware of the challenge in integrating PE teams that comprise multiple “type A personalities”.
He also highlighted the emergence of specialised funds targetting areas such as real estate, growth, credit and infrastructure as a continuing trend.
Reiterating the focus away from China in terms of both fundraising and deployment, he concluded, “Fundraising has slowed down significantly for pure mainland PE funds and PE players. I think people are much more sceptical of that at the moment. They're much, much more cautious.”
