They poured almost $50bn of fresh capital into Asian-dedicated private equity funds last year, according to the Hong Kong Centre for Asia Private Equity Research – almost a fifth more than in 2007. All this cash on the sidelines, and yet the deals still are not happening. In 2006, in spite of big commitments of manpower and capital from the big buy-out shops, financial sponsor-led deals in Asia accounted for just 6 per cent of overall mergers and acquisitions in the region, at $37bn, according to Dealogic. By 2008 that was down to 4 per cent; so far this year it is less than 1 per cent.
What does that say about the industry, if it cannot lubricate the world's growth engines? The approach that worked so well in the west – acquire a cash-rich asset with borrowed money, while spraying incentives at the management team – has largely failed to travel. Asian businesses, many of them family- owned, seem resistant to the charms of Ivy League-educated 30-somethings proffering firm handshakes, jargon- filled patter and fancy spreadsheets. Now, with credit vanishing and portfolio returns under pressure back home, many Asian private equity desks are in retreat.
The institutions funding them, meanwhile, should prepare for disappointment. A recent survey of 100 limited partners by Prequin found that they expected gross returns across the industry to be about 17 per cent, or just 150 basis points lower, over the next five years. But analysis this week from the British Venture Capital Association suggests that four-fifths of private equity firms' returns on recent UK deals could be explained by rising stock markets and leverage. Without those elements, and with economies souring by the day, the outlook is bleak indeed.