Southeast Asia’s private equity secondaries markets are drawing more attention, especially from family offices as Asia Pacific continues to face a challenging exit environment marked by lower IPOs, fewer trade sales and cautious financial sponsors.
Yifei Li
Alta
“We’re seeing growing interest from family offices with a VC (venture capital) investment mentality, looking to invest in early stage companies, in the Southeast Asian region.” Yifei Li, head of client business in Alta Alternative Investments, told AsianInvestor.
“Additionally, we also see interest from private equity firms and sovereign wealth funds with a mandate for the region,” she said.
Li believes that secondaries will become a popular exit choice in Southeast Asia for private equity firms in 2024, as investors will increasingly be exploring liquidity options including GP-led secondaries and continuation funds.
The uptick in interest was also flagged in the EY Quarterly Private Equity Update: Asean in February 2024.
“2023 was a slower year for fundraising as well as exits. The two are somewhat linked as a slower return of capital to limited partners resulted in a lower level of commitment to new funds raised. We expect to see higher exit activity in 2024 with secondaries being a popular exit choice,” Luke Pais, Asia-Pacific private equity leader at EY, wrote in a comment to the update.
Alta has also witnessed a surge in sell orders globally from venture capital firms and early investors looking for liquidity.
“VC funds, who usually are sellers in secondary trades, are reevaluating high conviction names through secondaries to establish a portfolio position,” Li said
A favoured approach by family offices seems to be targeting opportunities in funds targeting a diversified basket of secondaries, but Li had also noted a trends of choosing to invest directly in prominent high-growth firms.
GROWTH STORY
Many countries in Southeast Asia are experiencing rapid economic growth, driven by factors such as a young population, rising middle class, urbanisation, and increasing consumer spending.
The Asian Development Bank (ADB) has projected the region’s gross domestic product (GDP) to grow by 4.7% this year, up from 4.3% in 2023.
On that background, Southeast Asia’s private markets, particularly in secondaries, can offer unique entry points for investors looking to capitalise on deep discounts, according to Li.
“We are in the first down cycle of venture investments in Southeast Asia wherein there may be potential for investors to capitalize on deep valuation discounts to find entry into quality investments as the market consolidates,” she said.
Li believes that Southeast Asia’s secondary investments in a portfolio can help optimize risk-return profiles.
“By balancing investments across, geographies, and early to late stage companies, investors can enhance portfolio diversification and potentially improve overall risk-adjusted returns,” she said.
TRANSPARENCY TROUBLES
From Li’s conversations with clients and potential clients around secondary investments, the main concern has been the lack of transparency of information.
Investing in secondaries in Southeast Asia’s private markets is still new, when compared with more mature markets like the US.
“Investors who want to buy and sell secondaries often struggle to get the right information and find good deals,” Li said.
Private equity secondaries investments have grown rapidly since the late-2000’s as an asset class, rising from $11 billion in transaction volume during 2009 to $103 billion in volume during 2022 according to data gathered by Alta and investment research company Zero One from banking advisory firms Greenhill, Evercore, and Jefferies.
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