Japan’s private equity market defies regional slowdown as deal value surges by 183% in the Asia Pacific region

The private equity market in Asia Pacific experienced a decline in deal value last year, dropping to its lowest level since 2014. Factors contributing to this decline include slowing growth, high interest rates, and volatile public markets, according to a report by Bain & Company. However, Japan stood out as an outlier, with deal value increasing by 183% in 2023, making it the largest private equity market in Asia Pacific for the first time. Japan is seen as an attractive investment due to its deep pool of target companies with potential for performance improvements and pressure on Japan Inc to divest non-core assets.

Overall, deal value in the Asia-Pacific region decreased by more than 23% to $147 billion from the previous year. Exits also saw a 26% decline to $101 billion, with 40% of exits being through initial public offerings. Greater China accounted for 89% of the IPO exit value in Asia Pacific, primarily listing in Shanghai and Shenzhen. Despite the uncertain outlook for exits in 2024, successful funds are actively working on sales strategies to achieve target returns, according to Bain & Company.

The report highlights that many leading private equity funds are exploring alternative asset classes, such as infrastructure operations, renewable energy storage, data centers, and airports. Buyouts made up 48% of total deal value in Asia Pacific last year, surpassing the value of growth deals for the first time since 2017. Despite a decrease in the pool of investors, private equity returns are still more attractive than public markets over a five, 10, and 20-year horizon, according to Bain.

While signs of improvement were seen towards the end of last year, the timing of a recovery in the private equity market in Asia Pacific remains unclear. Upon recovery, disruptive technologies such as generative artificial intelligence hold promise for new investment opportunities. Japan, India, and Southeast Asia are viewed favorably for private equity investment opportunities in the next 12 months, according to Preqin’s 2023 investor survey as cited by Bain & Company.

In conclusion, the private equity market in Asia Pacific faced challenges last year, with a decline in deal value and exits. However, Japan emerged as a strong performer in the region, attracting increased investment due to its potential for performance improvements and corporate governance reform pressure. Leading private equity funds are actively exploring alternative asset classes and developing sales strategies to achieve target returns. The future outlook for the market remains uncertain, but opportunities for growth are seen in disruptive technologies and promising markets such as Japan, India, and Southeast Asia.